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Coking Coal Benchmark to Fall on Lower Use, Davenport Says

The global coking coal benchmark for the fourth quarter may fall to $175 a ton on lower demand for the steelmaking component, Davenport & Co. LLC said today.

The investment bank lowered its estimate by 17 percent and said that prices will average $205 a ton for 2013 and $215 for 2014 as global steel production slows, down from earlier forecasts of $218 and $225.

Davenport is at least the third investment bank this week to lower metallurgical coal projections, citing soft demand in Europe and China as well as recovering production in Australia, the world’s biggest exporter of the component.

“Met market conditions are very challenging currently and we do not anticipate a significant rebound in the near term,” J. Christopher Haberlin, an analyst at Davenport in Richmond, Virginia, said in the report.

BHP Billiton Ltd., the world’s biggest coking coal exporter, in July lifted a force majeure on its Queensland, Australia, operations after navigating rolling work stoppages.

“However, other producers are responding by idling mines and reducing production,” Haberlin said. “We expect softer demand to trump the supply response in the near term, keeping the global met market muted through the end of the year.”

Walter Energy Inc., a U.S. producer of metallurgical coal, said Sept. 4 that it would cut production by a “small amount” at its operation in Wales. The same day Consol Energy Inc., the largest U.S. coal company by market value, said it would idle its Buchanan mine in Virginia and at least part of its Amonate complex in West Virginia.

Raymond James Financial Inc., in St. Petersburg, Florida, and Dahlman Rose & Co., in New York, both lowered their metallurgical coal price projections this week.

The benchmark contract for the third quarter is $225 a ton, down 29 percent from a year earlier, when the market wrestled with supply disruptions in Queensland.

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