(Montel) European coal prices have risen to 17-month highs, fuelled by some healthier short-term European demand, yet the increase is limited by an overall abundance of supply, market participants said on Thursday.
The Q4 API 2 contract rose 6% over the past week to USD 63.60/t in the current session – the highest level since 16 February last year – while the Cal 17 rose 5.8% to USD 62/t, a fresh 16-month high.
But on the physical market, prices were not so well supported, with the Global Coal Des ARA {Amsterdam, Rotterdam or Antwerp) index last assessed at USD 57.90/t, down by USD 0.50 week on week.
“We estimate coal burning increased strongly over the last week in Germany, Spain and Italy, due to less renewable power output and increased cooling demand,” said Diana Bacila, senior analyst at Oslo-based Nena.
“This has reduced coal inventories at power plants and spurs restocking demand at ARA ports and from the seaborne market,” she said.
Coal stocks at four key ARA terminals were last pegged at 3.18m tonnes, around half the level recorded at the same time last year.
And the market was also garnering support from bullish technical signals, Montel reported.
Downside risks
However, broader market fundamentals were less supportive, said others.
“For the moment, the market is well supplied, but it still only wants to go in one direction, even with oil prices collapsing,” said an analyst with a European utility.
“I don’t have a fundamentally-backed reason for why the market is this strong,” he said, adding increased Chinese import demand was being used an “excuse” for the higher prices across the global seaborne market.
While Chinese thermal coal imports in the first half rose by around 3m tonnes, year on year, Indian imports fell by 8m tonnes, he said, adding this would ordinarily offset any bullish sentiment.
“Indian demand is down, which is more significant than the Chinese increase, and overall European demand is down heavily as well,” he said.
China’s new policy on its domestic coal industry – cutting the number of days per year a mine can operate by 16%, to 276 – was having a “big impact” on global coal markets, said ANZ Research, in a research note.
But while this helped to reduce excess seaborne supplies, and improve import volumes, “potential weakness” in China’s underlying demand and the reduction in India’s reliance on imports remained downside risks, it said.
Reporting by:
Laurence Walker
laurence@montel.no
12:00, Thursday, 28 July 2016
Editing by:
Snjólfur Richard Sverrisson
richard@montel.no
12:00, Thursday, 28 July 2016