The analyst said while China’s domestic coal price had flattened over winter, lately the regional market had experienced a sharp recovery thanks to a rainy season in Indonesia and Columbia, port disruption in Australia, and a cold winder after a quiet 2005 fourth quarter.

As a result, NEWC price has reached $US48/t, up 30% from the bottom, Credit Suisse said.

“The recent uptick from December lows of $US37/t has pushed prices on a spot basis approaching $US50/t. The backdrop for [Japanese financial year] JFY2006 contract prices has ratcheted higher on the back of this,” the analyst said.

“The Japanese utilities missed the chance to lock-in contracts at the low $US40s in late December. It now looks like the contract could be closer to $US50/t.”

Credit Suisse said the semi-soft contract prices also may not be “as bad as the market sees”, with Australian producers settling around $US53-55/t, and Rio Tinto and Xstrata expected to deliver outcomes closer to $US56-60/t.

“We believe Yanzhou Coal, with 74 percent of the export sales in semi, [will] be a beneficiary of this upside.”

With this in mind, Credit Suisse upgraded its rating of Yanzhou from neutral to outperform with a target price of $HK5.90-7. The analyst said Yanzhou would be a full beneficiary of the domestic thermal contract price hike and predicted a 6% rise in earnings in 2006, and 4% in 2007.

Looking ahead six to 12 months, Credit Suisse said the Chinese domestic spot price would soften on the back of an improving transport network and higher-than-export output.

For the regional market, it said an improved regional spot price could be capped by potential re-entrance of the marginal supplies from Indonesia.

In China, major power plants and mines are yet to sign 2006 coal supply agreements. The two entities have continued to bicker over prices, forcing the Chinese Government to issue a circular making it compulsory for agreements to be signed by the end of the month.