Cheap coal is fast becoming history, with its market - currently going through a period rapid price ncreases - unlikely to peak anytime soon due to the ongoing market dynamics.

Although still in the early days of the second quarter, 2008 has so far been an eventful year for the coal marke.  Even so, all is not well within the ranks of major coal producing countries. Australia has just seen some major weather related production interruptions through flooding, while China, India  and South Africa need their coal for domestic electricity generation.

This has resulted in the price of coal soaring by hundreds of percent - especially for coking coal, which is used by steelmakers. In less than a year, hard coking coal prices have moved from US$85 to US$98 a ton to the current range of between US$285 to US$300 a ton, depending on the location of the supplier.

Some producers are already demanding up to US$350 a ton, higher than the benchmark set by BHP Billiton Ltd., the world's largest mining company, in April.

There has also been an unexpectedly surge in demand for coking coal in Eastern Europe following recent mine accidents in Russia and Ukraine. Coupled to this are planned additions to India and Brazil's steelmaking capacities, which are expected to boost demand and further tighten the coking coal market.

 According to the Energy Information Administration, world coal consumption could expand by 74% from 2004 to 2030 putting further strain on prices.

While demand for coal is at an all-time high, supplies are going through difficult times, analysts say. Harsh weather conditions and infrastructure constraints in coal-producing regions have severely affected supplies.

 In South Africa, for example, power shortages and flooding have closed down several key mines, driving the price of coal coming out through the country's Richards Bay Coal Terminal, the world's largest, up by 90% since last year.

 Xstrata PLC, the world's biggest exporter of coal, says that first-quarter coal output fell 3.6% after floods and rain delays diminished supplies from Australian mines. Monsoon rains throughout the region also impacted archrivals Rio Tinto PLC and BHP Billiton Ltd.

 China, a leading producer and consumer, is shutting down small mines in a safety campaign ahead of the Olympic Games, which has driven up the price of coking coal as strong steel production keeps demand brisk. The country was devastated just a few months ago by the worst blizzard of the past half-century that also boosted its energy generation needs.

This week, bank and commodities researcher Macquarie Bank Ltd painted a bleak picture of the outlook for prices of coking coal, warning that they would remain at record highs into April next year due to rising demand and as higher costs delayed the construction of new mines.

Recently, the bank revised upwards its price forecast for all major coal types placing the adjusted price for coking coal for 2008 and 2009 at US$300 a ton, semi-soft coking coal at US$$220 a ton and thermal coal at US$140 a ton, up from US$125 a ton this year.

Quoting an analysis of the commodity produced by Macquarie, reported Tuesday that the price of hard coking coal may remain at US$300 a ton for the year starting April 1t 2009, up by 67% year-on-year from a previous estimate. quotes the bank as saying that that the floods that disrupted mining this year in Australia, the world's largest exporter of coking coal, forced at least six producers to forecast delays in shipments resulting in steelmakers cutting output because of shortage of the fuel. The loss of Australian tonnage to the market in 2008 has created sheer panic. Delays in new capacity combined with the disastrous floods in Queensland earlier this year appear to have created a structural shortage of met coal, which could now last for several years, the bank reported.

It says the floods may cut supplies by 12 million tons to 15 million tons and warns that Chinese steelmakers may face desperate shortages in the coming years and may be forced to increase imports.

 Macquarie says, while coking coal looks as though it would remain tight enough for producers to achieve flat prices, the trend may spread to other coal types, with thermal coal prices likely to move even higher as supplies get tighter as producers switch from mining it to semi-soft and soft coking coals.