--Clyde Russell is a Reuters columnist. The views expressed are his own.--
By Clyde Russell
LAUNCESTON, Australia, Aug 5 Prices for thermal and coking coal appear poised to diverge, with the power-plant fuel remaining mired in the doldrums and the steel-making ingredient posting modest gains.
The halving of thermal coal prices since early 2011 has grabbed the most attention in the beleaguered industry, but coking coal has actually performed worse, dropping by almost two-thirds since its post-2008 recession peak in mid-2011.
The 2011 high was reached after severe flooding in Queensland state, the main coking coal producer in top exporter Australia.
Both types of coal have been plagued by oversupply, which has swamped the modest increases in demand in top importers China and India.
The problem for thermal coal has been supply hasn't significantly been cut despite weak prices. Producers in the top two exporters Indonesia and Australia have been instead trying to cut costs and increase volumes in order to boost revenues.
Australian producers have another problem, the so-called "take-or-pay" contracts that commit them to paying for transport costs whether they actually ship coal or not.
These contracts can be upwards of $20 a tonne, meaning that as long as a miner's loss per tonne is below that level, it's cheaper to continue producing than it is to shut down.
This has kept Australian exports of coking and thermal coal rising despite the slide in prices.
Thermal coal has the added problem that other major suppliers aren't cutting exports either, with Indonesia expected to increase volumes in 2014 and South Africa likely to hold exports more or less steady.
Only North American exports are contracting, with several major producers announcing mine closures or cutbacks in recent months. This will result in lower exports for both thermal and coking coal from North America, but the impact is likely to be more keenly felt in coking coal.
It appears that there is a better chance of the decline in coking coal exports from North America matching the increase in shipments from Australia.
AUSTRALIAN EXPORTS TO RISE, U.S. TO DROP
Australia will export 175 million tonnes of coking coal this year, a gain of 2.9 percent from 2013, and 183 million tonnes in 2015, according to government forecaster the Bureau of Resources and Energy Economics (BREE).
BREE also estimates that coking coal exports from the United States will drop 4.6 percent this year to 56 million tonnes.
These figures imply that Australian supply will increase by about 2 million tonnes more than U.S. exports decline.
The risk is that Australian coking coal exports don't increase by as much, especially if more miners limit output or are successful in negotiating easier take-or-pay terms.
It's also possible - with coking coal prices currently holding around $120 a tonne for third quarter contracts - that U.S. producers will idle more mines.
A stronger U.S. economy will also increase domestic demand for coking coal, making less available for export.
Chinese customs data already shows how imports from the United States are diminishing, with a 60 percent year-on-year decline to 1.423 million tonnes in the first half of this year.
Shipments from Canada dropped 46 percent and those from Russia by 26 percent, the data show.
However, China's imports from Australia, which supplies almost half of the country's total coking coal imports, rose 13.2 percent to 15.02 million tonnes, while second-ranked supplier Mongolia increased its shipments 16.2 percent to 7.53 million tonnes.
Overall, coking coal imports fell 12.3 percent in the first half from the same period in 2013.
This suggests that coking coal imports may be due for a rebound, given ongoing strength in China's steel sector.
Crude steel output rose 3 percent in the first six months of the year from the same period last year, according to official statistics.
This implies China's demand for coking coal should be rising, and with domestic production likely flat to slightly lower, imports should rise as stockpiles deplete.
However, while coking coal prices may have reached the bottom, a sustained rally appears unlikely as strong gains will lead to higher U.S. exports.
For now, coking coal producers can look forward to modest price gains, while thermal coal miners fret about how much further prices can fall.
(Editing by Tom Hogue)