Nena News

COAL – Tight Atlantic basin, Asia demand to lift API 2

(Montel) European coal prices declined from recent near two-year high this week, although tightness in the Atlantic Basin and strong Asian demand should help to pare recent losses, participants said on Thursday.

The Q1 API 2 contract fell 1.16% on the week to USD 70.50/t, while the Cal 17 contract shed 1.2% to USD 64.50/t.

On the physical market, the Global Coal Des ARA index was virtually unchanged on the week, at USD 74.18/t, having dropped 4% from the two-year high of USD 77.20/t seen on Monday.

Bearish drivers including weak spot demand due to low water levels in Europe, which are hampering inland barge shipments to German plants, the return of Colombian supply after disruptions and the prospect of a drop in Chinese demand pressured contracts, said market participants.

However, the short-term outlook still favoured slightly higher prices, they added.

“The tightness could sustain in the Atlantic basin in the short-term, as coal exports from both Russia and Colombia were relatively stable in September, despite demand increasing from Atlantic buyers,” said Diana Bacila, an analyst at Oslo-based consultancy Nena.

Still-strong Asia-Pacific spot demand, particularly from China, where recently permitted production increases had yet to impact domestic supply, should also filter through to European prices, said players.

“Chinese traders who are short are already paying CNY 605/t (USD 89.94/t),” said a Singapore-based coal analyst, adding prices in the region were underpinned by still high coking coal prices and disruptions to Indonesian exports.

“The Indonesian [vessel] queue has increased, week on week, with some [vessels] waiting for a month to be loaded,” he said.

Limited upside
However, the picture wasn’t uniformly bullish, said Bacila. Although coal burning in Europe seasonally picks up as November approaches, relatively cheap gas could cap demand, she said.

“Coal-to-gas switch in Germany should improve now as more gas plants are profitable under current coal prices, a limiting factor for coal’s upside potential.”

Although coal demand remains strong in the Pacific, exports from Indonesia and Australia are picking up, she added.

“Weather is getting drier in Indonesia, thus mining and shipments should improve in the short-term. In Australia, higher coal prices have incentivised miners to restart idled operations,” added Bacila, noting Glencore’s recent decision to reopen a mine in Queensland.

Reporting by:
James Allen
18:06, Thursday, 13 October 2016