Feb. 1 (Bloomberg) -- UBS AG, Europe's biggest bank by assets, increased its price forecasts for coal used in power plants in 2008 and 2009 as China's demand rises and rain disrupted supplies from Australia.

Thermal coal will average $100 a metric ton this year, and $125 a ton in 2009, up from previous estimates of $90 and $110, UBS analysts led by Stephen Oldfield and Ghee Peh said in a report today.

Supply constraints and rising Chinese demand caused by the heaviest snowfalls since 1954 pushed prices of coal burnt in power stations to a record $105.17 a ton at Australia's Newcastle port, according to the globalCOAL NEWC index.

``We believe that due to the China coal crisis and supply disruptions in Australia, the North Asian coal markets are heading into unprecedented tightness,'' the UBS analysts said. China's ``coal crisis'' may ``continue for some time.''

China, the world's biggest producer, suspended coal shipments to South Korea until March to meet domestic demand, Dong-a Ilbo newspaper said, citing the South Korean government.

China had supply shortages before the snowstorms, which worsened the problem, and mines and consumers have highlighted that supply is the main issue and not transport, the UBS analysts said. The real ``problem is one of coal supply and this could take some time to resolve.''

China Inventories

China's coal inventories were at 22.7 million tons in December, down almost 7 percent from a year earlier, and 20 percent from a month ago, and stockpiles have declined to 16.6 million tons as of Jan. 30, enough for 8.5 days of consumption, UBS's Oldfield and Peh wrote in the report.

BHP Billiton Ltd., the world's biggest mining company, said yesterday that coal production at its joint venture with Mitsubishi Corp. in Queensland will be reduced for as long as six months.

BHP Billiton Mitsubishi Alliance, Macarthur Coal Ltd., Ensham Resources Pty and Wesfarmers Ltd. have all declared force majeure on coal shipments from mines in central Queensland.

Xstrata Plc said yesterday that so far it's been able to use stockpiles at mines to avoid declaring force majeure, a legal clause allowing a company to cancel contractual obligations due to circumstances beyond its control.

Australian coal mining operations affected by the flood ``may take months to get back to normal operating levels,'' the UBS analysts said. ``We believe that output of thermal coal from Australia could disappoint modestly in 2008. Already key producers have declared force majeure.''

Rio Tinto Group, the world's third-biggest mining company, resumed full production at two coal mines in Australia's Queensland state and said a third will reach full capacity within a week after being halted by floods.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.

Last Updated: January 31, 2008 22:04 EST