The company said that in the lead-up to the annual international price negotiations, higher-value premium hard coking coal remains in supply deficit, but lower grades such as semi-soft are in oversupply.

AME has issued a new volume in its quarterly Strategic Service on Metallurgical Coal, titled Momentum, which analyses how surging demand and unprecedented price levels led new and existing producers of metallurgical coal to ramp up production in 2004 and 2005.

This led to global shortages of labour, goods and services across the industry, pushing up the cost of production.

FOB costs were also driven up by increased royalty payments (in countries with royalty systems linked to the value of the coal sold), by the removal of export assistance measures in China, and by significant increases in rail freight costs in North America.

AME said that although costs had risen, producers had taken advantage of buoyant market conditions, with metallurgical coal output from companies surveyed in its report rising from around 167 million tonnes in 2003 to about 198Mt this year.

AME also released its annual evaluation of production costs in the export Metallurgical Coal industry – Metallurgical Coal 2006: Mine Costs 2000-2010. The analysis benchmarks 141 mines in Australia, Bangladesh, Canada, China, Colombia, Indonesia, New Zealand, South Africa, the United States and Venezuela, which account for 85% of this year’s global trade.

FOB and landed cost calculations are given for each mine with detailed production tonnages and cost breakdowns.

Recent global expansions in metallurgical coal production have lead to a host of new mining operations starting up in British Columbia and in Indonesia, where until recently only Kaltim Prima had produced this grade of coal.

On the thermal coal front, AME said the market would swing back to surplus with contract prices ebbing in 2006 and through the remainder of the decade. The thermal coal market had moved from deficit to balance in mid-2005, principally due to increased supply from Indonesia.

AME also touched on the impact of environmental regulations, which it said would impact unevenly on global import coal demand.

“The reality of a world with strong economic growth, massive expansion in power infrastructure and strong demand for all major forms of energy seems divorced from a world in compliance with Kyoto principles,” the AME study said.

“How long this can continue remains a key question for the export thermal coal industry.”

The study also documents major changes on the supply side with Indonesia set to become the largest global exporter of thermal coal this year – overtaking Australia, where mines are operating at the limit of current infrastructure capacity.