(Montel) Front-year European coal prices may rise by as much as USD 4.50 in August, as bullish Asian demand signals permeate into the European market, although an overall abundance of supply could limit gains.
The Q4 API 2 contract ended July at USD 63.23/t, up 11% month on month [56.90], while the Cal 17 also rose by 11% to USD 61.51/t, Ice data showed.
On Thursday, the former contract reached a 17-month high of USD 63.60/t and the latter hit a 16-month high of USD 62/t.
On the physical market, the Global Coal Des ARA index rose 8% month on month [53.56], to USD 57.78/t, having achieved a 14-month high of USD 60.96/t on 18 July.
The Asian benchmark Newcastle index ended the month at USD 64.46/t, up 17% from 30 June.
As the Cal 17 contract closed on Friday above the week’s midpoint of USD 60.13/t, more upside could be anticipated in the near term, potentially to around USD 63/t this week, said Tom Høvik, head of Montel’s technical analysis services.
“From a monthly perspective, the larger price target for August will be USD 66/t,” he said.
Fundamental support
From a fundamental viewpoint, the past month’s gains were variously attributed to heighted import demand from China – amid domestic production cuts – the prospect of a La Nina weather pattern disrupting winter output, Colombian exports to Asia and lower renewables generation levels in mainland Europe.
And some of these factors could continue to underpin prices over the coming month, despite the spectre of waning Asian demand rematerialising and prevailing oversupply, players said.
“We think prices will continue to be buoyed by China’s policies to reduce excess supply combined with potential supply disruptions in Indonesia and Australia from heavy rainfall,” said Australia’s ANZ bank in a note.
“However, potential weakness in China’s underlying demand and reduction in India’s reliance on imports remain downside risks,” it added.
“You could argue the API 2 was strong in the first half because India was taking Colombian coal. But nothing went in June – just a bit to South Korea – and if China doesn’t take it, it will stay in the Atlantic,” said an analyst with a European utility.
“This should put pressure on prices.”
Extreme weather
But there are some near-term bullish signals from the Asia-Pacific region, in particular regarding weather extremes, participants said.
“Excess precipitation has been an issue at Australian, Indonesian and South African coal ports in recent days, causing delays for coal shipments at a time of high demand in Asia,” said Diana Bacila, senior analyst at Oslo-based Nena.
And in south-east China, hot weather had spurred coal-fired power demand – for cooling systems – resulting in increased import demand amid low port stock levels, she added.
“The extreme weather has been most prevalent in central China and the southern China regions, with highs of 40C in some major cities,” said a Singapore-based coal broker.
“I am guessing at least 100m people live in that region, who have air conditioning.”
Reporting by:
Laurence Walker
laurence@montel.no
09:07, Monday, 1 August 2016
Editing by:
Robin Newbold
robin@montel.no
09:07, Monday, 1 August 2016