A trade standoff between China and Japan over coal supply could bring stronger coal prices, a Merrill Lynch analyst said Monday.

Japan needs Chinese coal, but so does China. Currently, Chinese consumers are willing to pay more. The country’s fast-growing, energy-hungry economy has created a strong market for coal, which is used fuel power plants and industry.

China Coal last week proposed a $67-per-ton price on its exports to Japan, said analyst Vicky Binns in a client note. The Japanese countered with $60 per ton. That’s low given that some Chinese producers are delivering at as much as $80 a ton locally, Binns said.

“With domestic demand booming, China’s producers want to secure export prices at levels matching the local numbers,” she wrote.

Some Chinese producers of thermal coal have said they won’t ship in April if a contract price for the 2007-2008 delivery year isn’t set by then.

The analyst said the standoff should support key seaborne thermal coal prices in the short term. Over the next three years, Binns said “coal looks strong” and prices should remain at current, elevated levels.

The analyst said her preferred exposure among U.S.-listed companies would be through Peabody Energy, Consol Energy. and Yanzhou Coal Mining Co. She rates Peabody and Consol at “Buy” and Yanzhou at “Neutral.”

Peabody shares rose 33 cents to $41.17 in afternoon trading, while Consol shares rose 7 cents to $39.28 and Yanzhou shares slipped 1 cent to $46.49 on the New York Stock Exchange.

AP

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