Newcastle Coal Price Falls to 6-Month Low, Drops Below Contract

By Jesse Riseborough

Oct. 6 (Bloomberg) -- Power station coal prices at Australia's Newcastle port, a benchmark for Asia, fell for a seventh week, dropping 6.1 percent to trade below this year's contract price as Chinese demand slows and oil prices slump.

The weekly index for power-station coal prices at the New South Wales port dropped $7.81 to $121.17 a metric ton in the week ended Oct. 3, according to the globalCOAL NEWC Index. The spot price is now trading below the contract price of $125 a ton for the year that started April 1 for first time since the week ended April 4.

Oil declined 12 percent last week as reports showed U.S. fuel demand in the previous four weeks was the lowest in almost seven years. Demand from China, the world's largest consumer of thermal coal, is slowing as output from domestic mines increases, said Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd.

``Oil prices are really hitting the skids now and that is going to continue to drag energy prices lower,'' Pervan said today by phone from Melbourne. ``China is back on its feet production-wise and at the same stage we are starting to see some slower demand conditions.''

The weekly globalCOAL index has slumped 38 percent since trading at a record $194.79 in the week ended July 4. The monthly index fell 10 percent to $144.82 a ton in September, from $160.90 the previous month.

Commodity prices measured by the Reuters/Jefferies CRB Index of 19 raw materials tumbled 10 percent last week, the most since as least 1956.

``The fact you are seeing such heavy corrections in other commodity markets it's no surprise that we are seeing spot markets dip below last year's contract,'' Pervan said. The price may head toward $100 a ton as demand slows sharply, he said.

Xstrata Plc, the world's largest exporter of power-station coal, BHP Billiton Ltd. and Rio Tinto Group are among mining companies that ship coal through Newcastle.

Thermal coal producers won a 125 percent increase in annual contract prices this year on supply constraints and increased Chinese demand.

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