In the bank’s latest weekly commodity report, head-authored by senior commodity strategist Mark Pervan, ANZ has forecast lower oil prices and reaffirmed its view that the fate of coal is tied to oil.

“Coal prices will continue to be influenced by oil markets – a weaker forecast oil price should imply a weaker coal price,” the bank said in its analysis.

ANZ took into account a flattening in the Baltic freight market from recent heavy declines and even suggested it might be signalling the bottoming out of coal prices for the time being.

“Saying that, buying interest is likely to remain light until after the new year, with most key buyers fully stocked in the near term,” said ANZ.

The bank also noticed spot tenders for coal remain scarce and said most traders were hoping for lower prices.

“Asian buyers can afford to wait – with reports Japanese utilities have thermal coal stocks of at least 30 days and South Korean power plants levels around two weeks,” ANZ said.

“Demand for Indonesian coal is falling, because of lower Australian and South African prices – the observation backed up by reports of Indonesian coal mines shutting down.”

ANZ added that reports were suggesting Japanese utilities may be able to negotiate 2009 term contract prices in the mid $US70s for thermal coal if free on board Newcastle prices fall below $US60 a tonne in the next few weeks, “which many traders consider likely”

The analysts said demand conditions were faltering in Europe but emphasised the importance of the changing Asian coal market conditions.

“Reports that the semi-soft coking coal market has slowed sharply will also take a major support mechanism out of thermal prices – as high calorific value coal returns to the thermal market,” ANZ said.

“Rising consumer stock levels create a potential overhang, which should delay a better demand response into the new year.

“Heightened interest will be on rapidly declining Chinese electricity demand – which, if it continues, could create major negative swing supply into the export market.”