Asian coal prices set to rally

Coal prices in Asia are poised to rally after the worst quarter in four years amid strengthening demand from China and coal production cuts by Australian miners.

Steaming coal at Newcastle port, the Asian benchmark, averaged $US77.06 a tonne in the third quarter, the lowest since the same period in 2009, according to data from IHS McCloskey.

Morgan Stanley forecasts a fourth-quarter average of $US82 while CIMB Group Holdings predicts $US85.

Morgan Stanley says the coal glut will reach 14 million tonnes this year, or 1.6 per cent of global seaborne supply. A 25 per cent drop in supplies at Chinese power generators signals that demand for imports may increase.

‘‘There’s going to be a bit more buying activity from the Chinese,’’ said Mark Pervan, the head of commodity strategy at ANZ. ‘‘We’re starting to see a decline in Chinese stockpiles at both port and power plants. That’s a good sign for demand.’’

Supply cuts, stronger demand from China and restocking before the northern winter may lead to a ‘‘modestly increasing spot price’’, Peter Richardson and Joel Crane, at Morgan Stanley, said in a recent report. Thermal coal inventories at Chinese utilities are at the lowest level in two years.