The international coal market has taken a beating in recent months due to the weakening global economy, and conditions are expected to get worse before they get better, according to Friedman Billings Ramsey & Co.

"As we are going through mid-February, key statistics coming out of China, Japan and Europe continue to indicate that the coal market is about to slump further as we head into the low demand period of spring, putting pressure on the export spot markets," FBR analyst David Khani wrote in a Feb. 17 research note titled "State of the International Coal Market: Seaborne Trade to Get Worse."

Negative indicators for the coal market continue to mount in China, according to the report, including a 12.9% decline in power consumption in January compared to the same month in 2008. "Consumption declined the most in provinces such as Guangdong (-31%) and Zhejiang (-25%) that are heavily exposed to export," Khani noted. "Coal-fired generation declined 16.7% [year-over-year] and the capacity utilization declined by 24% to just slightly over 47%. The weeklong Chinese New Year holiday may have skewed the comparison somewhat. Nonetheless, it is the 4th month in a row in which [year-over-year] power consumption declined in a significant way."

Coal inventories also continue to build in China, with stocks at the Qinhuangdao port rising to 7.23 million metric tons as of Feb. 13, up by 2.6% from a week prior and 41% from mid-January, FBR said. "Inventories at power plants across central and northern China reached 36.4 million metric tons in January, more than double that in January last year," Khani wrote.

The signs are just as weak in Japan, FBR said, noting that thermal electricity generation was down nearly 14% year-over-year in January. Japanese coal consumption is also down sharply, dropping 6.4% year-over-year to 4.8 million metric tons in January.

In Europe, FBR said that Spanish coal-fired generation has decreased by nearly 40% year-to-date, accelerating a trend of falling coal consumption by the country's utilities. Elsewhere, major ports in France and Germany have shown noticeable declines in coal volumes so far in 2009.