In its Minerals & Energy Outlook issued this week, the bank noted that spot prices for hard coking coal have “essentially stabilised” since mid-May, trading near $US85/tonne for the Asia Clear Australian Active contract, having fallen considerably since the start of the year.

Demand for seaborne metallurgical coal has weakened in 2015, driven by falling Chinese imports. In the first seven months of the year, China’s imports totalled 28 million tonnes – a year-on-year decline of 22%.

NAB said further weakness in China’s steel industry was likely to result in an acceleration in this rate of decline across the rest of 2015.

“The coal requirements of China’s blast furnace steel production are increasingly being supplied by domestic producers,” NAB said.

“By our estimates, consumption of domestic metallurgical coal has fallen much more moderately – down around 2.0% over the first seven months of the year – with domestic supply accounting for around 91% of steel market requirements.

“Australia’s exports of metallurgical coal have continued to increase – albeit the rate of growth has slowed in recent times. In the first half of 2015, Australian exports rose by 1.1% year-on-year to 91 million tonnes (compared with growth of 9.8% in 2014).

“Reflecting weakness in the seaborne market, there is little prospect for an acceleration in growth in the short term.”

Other major global producers have responded to weak demand and falling prices.

US exports of metallurgical coal fell by almost 17% yoy in the first five months of 2015, while Canadian exports fell by over 12% yoy over the same period. We expect supply from these producers to remain constrained.

NAB expects weak market fundamentals to keep contract prices subdued in the short term, forecasting hard coking coal contract prices to average $102/t in 2015 and $93/t in 2016.