(Montel) European paper coal prices slumped to five-week lows on Thursday amid persisting signs of easing tightness in the Asia-Pacific region, although analysts were split as to whether the plunge would continue.
The Q1 API 2 contract fell 14.9% on the week to a last trade on Thursday at USD 72.25/t, while the Cal 17 contract shed 14.2% to USD 65.25/t, according to Ice Futures Europe.
Earlier on Thursday, the contracts slumped to USD 68.75/t and USD 62.60/t, respectively, the lowest since 12 October.
“The major reason global coal prices have plunged is related to the Chinese government announcing to allow all miners that comply with safety production rules to operate under 330 days/year until the end of the winter season, not end of the year as stated before,” said Nena analyst Diana Bacila.
“Coal producers in China didn’t seem to respond to the government’s call to lift output in October, which ended up lower compared to September and also to last year,” she said, noting that was mainly due to miners being reluctant to ramp up production for only two to three months.
“But now they have at least three months extra in 2017,” she said, explaining the drop in prices.
Split
However, players were split as to whether the descent in prices would continue.
“Some of the correction might be justified, but it is getting overdone, because winter is coming, and people are still buying – not only the Chinese, but everyone else,” said a coal analyst with a Singapore-based trading house.
But analysts at JBC Energy – citing recovering Chinese and Indian output, the restart of previously shutdown mines in Australia and returning South Korean nuclear capacity – predicted coal prices would increasingly come under pressure heading into Q1 2017.
“In Europe, we see prices plunging as they responded to the news in Asia, but also to increased supply coming from the US,” added Bacila.
“We have seen the US coal arbitrage window to Europe being frequently open over the past month, which has allowed European buyers to secure cargoes ahead of the heating season.”
With the Rhine river returning to normal levels, coal utilities could now rapidly restock from ports as these cargoes reach north-west European ports, she said.
Dollar rise
The recent strengthening of the dollar was also negative to coal prices, she added.
The dollar hit a 13-year high on Wednesday, driven by investors’ hopes that the Federal Reserve may raise rates more quickly under a Donald Trump presidency.
The dollar index, which measures the greenback against six major currencies, rose to 100.57 on Wednesday, its highest levels since April 2003. It was last seen at around 100.30.
“All miners currencies have depreciated, allowing them to accept lower prices in US dollars,” said Bacila.