With no signs of a supply-demand turnaround, coal prices could remain weak for another 2-3 months. While valuations have discounted low coal prices, a lack of price visibility suggests investors should not yet position themselves for a sustainable rebound.

We cut our 2012-14 coal-price forecasts and earnings estimates for our coal companies by 5-13%. We lower our price targets to 8.5-12.1x CY13 P/Es (-1.5 to -1.7 SD to their 3-year means) from 8.6-12.0x to reflect the coal's low price visibility. We remain Neutral on the sector, with HRUM as our top pick.''

Negative market forces''

We cut our 2013-14 coal prices to US$110-115/tonne (from US$120-125) as still-weak demand in China and Europe, combined with supply from traditional and non-traditional sources (US, Colombia), continues to pressurise prices. High inventories in China and Europe, still-volatile imports by India and the continued flooding of Asian markets by US supply have been outpacing production cuts. Compounding the pain is lower domestic demand in key markets, from the availability of cheaper gas.