Coal prices have further to fall

The recent weakness of global coal prices is relatively easy to explain, as it reflects a straightforward mix of surging supply, sluggish economic activity, falling oil prices and the boom in the natural gas sector in the US. But in contrast to the consensus, which is that prices will soon rebound, we expect the price of the European coal benchmark to fall from $86 to around $70 per tonne by the end of this year and remain weak at least through 2013.