Newcastle Coal Price Falls a Ninth Week as Oil Drops

By Jesse Riseborough

Oct. 20 (Bloomberg) -- Power station coal prices at Australia's Newcastle port, a benchmark for Asia, fell for a ninth week and dropped to a nine-month low amid declining freight rates and falling oil prices that cut demand for coal.

The weekly index for power-station coal prices at the New South Wales port fell $7.20, or 6.4 percent, to $104.70 a metric ton in the week ended Oct. 17, according to the globalCOAL NEWC Index. Crude oil dropped 7.5 percent last week and has slumped 24 percent in the past three weeks.

The Baltic Dry Index, a measure of shipping costs for commodities, fell for a 10th consecutive trading session in London on Oct. 17, indicating a slump in demand. OPEC, the supplier of more than 40 percent of the world's oil, plans to cut output for the first time in almost two years as the worst financial crisis since the 1930s sends prices lower.

``It is taking its lead from the oil market and Baltic freight rates, both of those are flagging lower prices,'' said Mark Pervan, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. in Melbourne. An OPEC decision to cut oil production may ``trigger a mild relief rally in oil which could flow on to the coal market.''

Newcastle coal traded below the $125 a ton contract price for a third week and is 46 percent off a record $194.79 set for the week ended July 4. The monthly index fell 10 percent to $144.82 a ton in September from $160.90 the previous month.

``The risk is still on the downside and sentiment is very much focusing around demand at the moment, not supply,'' ANZ's Pervan said.

Declines `Overdone'

Still, demand for thermal coal remains intact and price declines are ``overdone,'' analysts at RBC Capital Markets said in an Oct. 17 report, where they maintained their forecast for a 16 percent gain in 2009 contract prices to $145 a ton.

``The `low' thermal spot price will undoubtedly be used by consumers as evidence of softening demand and hence justification for a reduction in the Japanese fiscal year 2009 contract benchmark,'' analysts led by Sydney-based Geoff Breen said. ``We would point out again that most sales are not spot sales and physical coal sales into the spot market have been for small volumes and trade has for the most part been in coal swaps.''

Exports from Newcastle, the world's biggest export harbor for the fuel, fell 10 percent in the week ended 7 a.m. local time today, dropping to 1.7 million tons from 1.9 million tons a week earlier, Newcastle Port Corp. said today on its Web site. A total of 25 ships, waiting to load 2.1 million tons of coal, were lined up outside the port, up from 24 last week.

Coal ships waited 8.8 days to load coal in the week, up from 8.6 days a week earlier, Newcastle Port said. The waiting time compared with 0.08 day for general cargo vessels last week, it said.

To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net