June 30 (Bloomberg) -- Coal and iron prices, which have risen to a record in the past year amid surging global demand, will fall in 2006 as China and Australia boost port, rail and shipping capacity to handle the minerals, said Investec Plc.

Australia, the world's biggest exporter of coal and one of the two largest exporters of iron ore, is expanding rail lines and the ports of Gladstone and Dalrymple Bay to reduce ship delays, said Nick Hatch, a London-based analyst with Investec, in a June 24 e-mailed report. Transport bottlenecks have curbed sales by mining companies like BHP Billiton and Rio Tinto Group.

Congestion ``has reduced commodities supply,'' Hatch said in a June 29 interview. ``We think it will ease next year.''

Global prices of thermal coal used in power stations to generate electricity gained after China reduced exports to meet its own needs. China's steel industry, the world's biggest, helped drive up iron ore prices by buying more of the raw material to feed new steel mills. Mine output surged to meet the demand, worsening port and rail congestion.

Benchmark annual iron ore supply contract prices agreed by BHP and other suppliers with steelmakers rose 71.5 percent to a record for the year started April 1. Thermal coal delivered within three months from Newcastle reached a record high of $63.63 in the week ending July 25, according to globalCOAL.

Contrasts

Hatch forecasts prices of annual iron ore supply contracts to start from April 1 next year will drop 10 percent, compared with his previous prediction of a 5 percent decline. Hatch lowered his average thermal coal export price for 2006 to $46.25 a ton from $50.

Hatch's forecasts contrast with those of some other brokers. ABN Amro Holding NV and Deutsche Bank AG were polled in a Bloomberg survey published June 20, predicting prices may rise as much as 5 percent or stay at records into 2006.

Brazil's Cia. Vale do Rio Doce, the world's largest iron ore exporter, told analysts this week it expects iron ore prices to stay at records in the next two years because of China demand, Credit Suisse First Boston said yesterday.

Rio de Janeiro-based Vale told analysts that supply of iron ore ``is under control'' with expansion limited till 2008 as mine expansions worldwide are limited by the lack of equipment, contractors and tires, Credit Suisse said yesterday, citing the company.

Ships Queue

Australian Prime Minister John Howard said on June 1 the government may intervene to work with state regulators to solve rail and port bottlenecks. Central bank Governor Ian Macfarlane said in February the problem had crimped economic growth.

``Six months ago people weren't talking about the problem,'' Hatch said. ``Now there's not only lots of talking, there's some action.''

Dalrymple Bay owner Prime Infrastructure Group sold A$182.4 million ($138.8 million) of shares in May to fund the enlargement of what is already Australia's second-largest coal export terminal. Gladstone in Queensland is also building more coal loading capability.

Queues of bulk carriers waiting to load at the world's biggest coal export terminal in Newcastle, New South Wales, peaked at 56 in March 2004, Hatch said. Port Waratah Coal Services Ltd., which runs the terminal in April 2004 imposed a quota on miners to cut congestion.

Bottlenecks have developed outside Australia, including at the 72- million-ton-a-year South African port of Richards Bay, which loads most of the nation's coal exports. Its lack of spare capacity is preventing more shipments of coal from joint owners BHP and London-based Anglo American Plc. Work has begun to enlarge capacity, South Africa's Financial Mail reported last week. State-owned rail company Spoornet plans to expand capacity.

More Ships

Shipbuilders are making more bulk carriers to deliver coal and iron ore.

New orders stand at 70 million tons of vessel capacity compared with 22.4 million tons in 2003, Hatch said. About 124 vessels were sent to owners so far this year, said Paris-based shipbroker Barry Rogliano Salles earlier this month. Another 219 are scheduled for delivery during the rest of the year.

Hatch, 45, has been a mining analyst for 23 years, joining South African bank Investec's London office four years ago from JPMorgan Fleming.

In March Hatch cut Investec's rating of BHP shares to ``hold'' from ``buy'' on forecasts that commodity prices won't rise much further. The shares, which had gained 48 percent in London in the year prior to the rating cut, have since slumped 6.7 percent.

To contact the reporters on this story: Simon Casey in London at scasey4@bloomberg.net

Last Updated: June 29, 2005 20:58 EDT