Nena News

La Nina emergence less likely, but threat to coal remains

(Montel) The likelihood has lessened of a La Nina weather pattern hitting output from the world’s largest thermal coal exporter Indonesia this year although the threat remains, the Australian Government Bureau of Meteorology said on Tuesday.

“In the tropical Pacific Ocean, recent model outlooks indicate a reduced chance of La Nina in 2016,” it said in its latest outlook report, regarding the central part of the ocean which includes Indonesia and northern Australia.

“Most climate models indicate the central Pacific Ocean will continue to cool, but only two of eight models show La Nina values through the southern hemisphere spring [September-November],” it added.

Nevertheless, there is still a 50% chance of a La Nina emerging in late 2016-early 2017, it said.

La Nina periods are usually, but not always, associated with above normal rainfall in affected areas.

The last La Nina, which occurred in 2010-2011, caused widespread coal production and export disruptions in Australia, due to heavy flooding.

“If La Nina does develop, climate models indicate it will not be as strong as the most recent La Nina, which was one of the strongest on record,” the Australian forecaster said.

Latest US government forecasts – published on 15 July by the National Oceanic and Atmospheric Administration (Noaa) – predict a slightly higher 55-60% risk of La Nina reappearing this year, however these forecasts were revised down from 75% in June.

Impending risk
“If there is any risk to coal output, it will be from October onwards, in Indonesia and Australia,” said Diana Bacila, senior analyst at Oslo-based Nena, noting Colombian production could also be affected in the fourth quarter.

“The problem is that [the fourth quarter] is a time of high demand in Europe, Asia and even the US,” she said, adding freight rates could also be affected, due to congestion at ports.

“[There is a] threat to Colombian production by the expected La Nina, which may cause heavy rain and flooding,” said Howard Gatiss, chief executive of Colombian coal exporter CMC Coal Marketing.

“[Should this happen] we would see supply and demand as fairly tight, and that may well feed into coal prices,” he said.

Analysts at Citi Research said last week Asia-Pacific benchmark Newcastle coal prices could jump by 50% from current levels to as much as USD 90/t by early next year in the case of a La Nina weather pattern emerging.

But even without a La Nina, the coming winter could prove somewhat bullish for prices, said Bacila.

“We don’t need a La Nina. Just a normal winter would increase heating demand for power – and therefore coal – as the last three winters were mild,” she said.

Reporting by:
Laurence Walker
13:59, Tuesday, 19 July 2016

Editing by:
Jeff Coelho
13:59, Tuesday, 19 July 2016