AUSTRALIA'S coal prices, already on the rise, are tipped to be...

AUSTRALIA'S coal prices, already on the rise, are tipped to be boosted by unseasonal rains, with increasing demand to slow production.

Last month's unseasonable rain and the start of a wet summer has the market expecting a rise in coal prices similar to that in 2007-08, when Queensland's coking coal production was lowered because of unfavourable weather, leading to a tripling in annually set coking coal prices to $US300 a tonne.

November rainfall in Queensland's coal hubs was up to 400 per cent above average, and in NSW rainfall was up to 300 per cent higher.

ANZ commodity research head Mark Pervan said coal had been staging a seasonal catch-up as key customer China "finally returns" to the seaborne market.

He said the stronger demand backdrop was being met by a struggling supply response from key Asian supplier Indonesia.

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"All eyes are on weather forecasts, watching snow storms in northern China and monsoon conditions in Indonesia," he said.

"Risks are to the upside for prices, with bottleneck-prone Australia likely to shoulder the bulk of the supply response."

Although Australian coal producers are set to benefit from China's increasing demand, the unseasonal wet weather could affect the supply response, driving up the price.

Xstrata and Anglo American have already declared force majeure on coking-coal production in Queensland because of heavy rains ahead of the wet season.

And the state's biggest coal producer, BHP Billiton, has flagged lower second-quarter production because of the rain.

Macquarie analyst Colin Hamilton said in a recent client note that the unseasonal rains in Australia had added a degree of worry to steelmakers active in the seaborne coking-coal market.

"While this is a long way from escalating into full-blown panic over security of supply, and export volumes have shown no impact thus far, sentiment certainly seems to be shifting in the miners' favour," he said.

"Against a backdrop of a return to Chinese steel output growth and potential seasonal supply disruption, the balance of price risk for hard coking coal versus the current $US209 tonne seems skewed to the upside.

"Prices for semisoft and PCI coals could have greater upside leverage, having been hit hardest by the weaker market conditions in recent months."

Iron ore prices also are tipped to rise higher and Mr Pervan said the sought-after product was regaining its premium commodity status, rebounding strongly over the past couple of months as confidence returned to the Chinese steel market.

Iron ore prices were back over $US160 a tonne for the first time in six months, he said.

Global iron ore reference-price provider Platts has predicted Brazil's Vale to raise its prices in the next quarter by 7 per cent, and Rio Tinto is expected to push its prices 8 per cent higher.

Rio could raise the price of its flagship product, Pilbara-blend fines, to $US136.94 a tonne, compared with the $US127.18 a tonne this quarter.

although not a producer,any sniff that we can finally move forward with one of our coal tennements,we will run hard like we did before with mt mulligan,new highs will be reached in 2011

http://www.theaustralian.com.au/business/mining-energy/coal-prices-set-to-soar-as-bad-weather-takes-its-toll/story-e6frg9e6-1225964769679