BHP Billiton Ltd. (BHP), the world’s biggest exporter of steelmaking coal, may face a drop in contract prices to a record low in the third quarter amid rising supply and weaker Asian demand.

Asian buyers will probably pay $165 a metric ton for hard coking coal in the three-month period starting July 1, according to the median estimate of five analysts surveyed by Bloomberg News. That would match the record low for contracts set in the first quarter and compare with $172 a ton in the second quarter. Spot prices have slid 11 percent since March, data compiled by Bloomberg show.

Rising supply from Mongolia and South Africa has added to an increase from Australia, which is rebounding from January floods that shuttered rail lines and crimped exports.

Rising supply from Mongolia and South Africa has added to an increase from Australia, which is rebounding from January floods that shut rail lines and curbed exports. A slowing Chinese economy is also causing weakness in the price, Shuma Uchino, the chief financial officer of Mitsubishi Corp. (8058) said in Tokyo on May 8. The Japanese company is a partner in the world’s biggest exporter, the BHP Billiton Mitsubishi Alliance.

“There’s too much supply,” said Daniel Hynes, the Sydney-based head of commodity strategy at CIMB Group Holdings Bhd. (CIMB) who predicts contracts may be settled at $180 a ton. “There’s a recovery from the Australian market, which is compounding weak demand from China and Japan, the biggest importer of premium hard coking coal. That has meant that the market has remained relatively weak.”

Supply Increase

Fiona Hadley, a spokeswoman for BHP in Melbourne, declined to comment on contract negotiations.

Hard coking coal closed at $152 a ton on May 1, according to data compiled by Bloomberg from Energy Publishing Inc. The forecasts for the third quarter ranged from $155 to $180 a ton in the Bloomberg survey from May 6 to May 9. Contract prices averaged $210 a ton last year.

Australia’s total metallurgical coal exports climbed 7.9 percent to 12.8 million tons in March, the highest since December, according to data from the Australian Bureau of Statistics. Shipments increased for the first time in three months, the figures show.

Increasing supply from Mongolia and South Africa has weighed on prices, along with weaker demand for steel, National Australia Bank Ltd. said in a May 6 research report. The bank cut its forecast for third-quarter contracts by 11 percent to $155 a ton, from $175 a ton.

Mongolian Output

Erdenes Tavan Tolgoi LLC, Mongolia’s largest state-owned coal company, resumed shipments to China in late April after a three-month standoff with its biggest customer, according to a government statement on Prime Minister Norovyn Altankhuyag’s comments in parliament on April 19.

The re-balancing of the seaborne metallurgical coal market will be more gradual than previously anticipated, Goldman Sachs Group Inc. said in a May 7 report. The bank cut its 2013 forecast 8 percent to $164 a ton and its third-quarter contract estimate 11 percent to $165 a ton.

“A cautious China demand outlook continues to dictate sentiment, although high levels of Chinese stockpiles are weighing further on coal markets,” Mark Pervan, the head of commodity research at Australia & New Zealand Banking Group Ltd. (ANZ), said in a note May 9. The bank forecast $155 a ton for third-quarter contracts.

Metallurgical-coal suppliers traditionally held annual talks with steelmakers to fix benchmark contracts for the 12 months from April 1, the start of the Japanese financial year. They changed to quarterly negotiations in 2010.