Bank of America Merrill Lynch said it’s “bullish” on China’s power-plant coal price because of railway congestion and strong demand from utilities.

Merrill Lynch maintained its forecast for thermal coal contract prices in China at 570 yuan ($83) a metric ton this year and 653 yuan in 2011, according to the June 8 report. Spot prices were higher at 708 yuan and 814 yuan respectively.

“Daqin railway is currently running at full capacity utilization at 380 million tons a year in 2010,” Yongtao Shi and Colin Liang, research analysts at the bank, said in the report. “We expect the railway bottleneck to worsen and support the coal price in the mid term.”

China’s power generation in summer rises as much as 10 percent above the monthly average and in winter, climbs as much as 20 percent above average, the bank said.

The bank increased its global thermal coal forecast by 29 percent to $110 a ton for the 2011 Japanese financial year and by 28 percent to $100 in 2012, according to the report.

Seaborne thermal coal will be in tight supply over the next few years, with China’s strong import levels likely to balance the market, according to the note.

The bank reiterated its “buy” rating on China Shenhua Energy Co.

--Editors: Jane Lee.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net

To contact the editor responsible for this story: Clyde Russell at crussell7@bloomberg.net

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