Typical spot prices out of Newcastle similarly tracked down to US$24.00/t in mid June, with some sub US$22/t deals being reported late in the month.

International demand for steam coal has flattened right out this year, with imports by the top four countries being up only a paltry 0.1% in the March quarter compared to the March 2001 quarter. This time last year we were experiencing high double digit growth in steam coal imports.

The flattening in demand has caught exporters out in a big way after production was set on a steep upward curve chasing the high prices of last year. The result has been a blow out in inventories and tumbling steam coal spot prices. Australian stocks of export coal rose to 16.0 Mt at the end of May, only a tad under the 16.2 Mt record of March 1998. The high stock levels of 1997 and 1998 preceded the worst ever slump in international coal prices during 1999 and 2000.

Given the strong correlation between Australian export inventory levels and international coal prices, action is required by Australian producers to cut stock levels. But, with recovery in the world economy still on the cards, despite continued mixed signals, and expectations of a gradual recovery in demand for steam coal to more typical growth rates of around 5% per year, producers are not expected to close or idle large export steam coal mines just yet. With producer response expected at this stage to be restricted to reductions in days per week of operation and overtime worked, the outlook is for continued weakness in steam coal spot markets for the rest of the year.

On the coking coal front, Japanese benchmark hard coking coal prices are close to settlement, with Canadian deals possibly already having been done under a veil of secrecy. There are some unverified rumours that a Canadian company has settled at around US$47/t FOB, which would represent an increase of some 9% from the JFY 2001 price of about US$42.85. If this proves correct, it will make for an interesting negotiation when BHPB resumes its negotiations with the Japanese steel producers on 8 July, with Australian producers expected to still hang tough for an increase of 12% or more.