Nena News

COAL – Coal slides on milder weather, weak physical demand

(Montel) European coal prices have fallen from the 11-week highs hit earlier this week as milder weather combined with waning physical spot demand in the Atlantic basin, players said on Thursday.

The Cal 18 API 2 contract traded last at USD 64.80/t, down 3.2% on the week, according to Ice Futures Europe. The contract has now fallen in three consecutive sessions after hitting an 11-week high of USD 70.25/t on Monday.

On the physical market, the Global Coal rolling delivered ex-ship, Amsterdam, Rotterdam or Antwerp (Des ARA) index was last assessed at USD 87.75/t, down 2.4% week on week.

“European coal prices have declined as the cold spell is over and temperatures are expected to rise above normal in the next period,” Nena analyst Diana Bacila told Montel.

Starting next week, the UK should see temperatures of up to 3C above normal, with parts of France seeing even 5C above average, showed forecasts from SMHI.

This will put an end to a cold snap that has lingered across Europe for several weeks, lifting energy contracts across the board.

Waning demand
A lack of physical spot demand in the Atlantic basin was also pressuring coal contracts, said players.

Just one cargo for delivery in northwest Europe has traded via broker Global Coal since the start of the year, compared with 14 in the first 26 days of January last year.

In recent sessions, the market had also been “catching up” with negative price signals from China, added Andrey Shubin, a Norway-based analyst at SKM Energy.

In China, domestic prices have declined in recent weeks amid milder weather starting in Q4.

However, further losses in the Atlantic basin were unlikely given a lack of Russian offers and the possibility of Colombian cargoes shipping to Asia and not Europe, said Shubin.

“Russian supply for Q1 seems to be sold out, while South Korean demand for Colombian material could push up the prompt level,” said Shubin.

Limited upside
Indeed, restocking demand should be “very strong” in the Atlantic basin after the end of the cold spell, especially from countries in the Mediterranean region, which would be supportive for coal prices, said Bacila. 

But the upside is limited, she added.

“In contrast, low Rhine river levels are likely delaying coal purchasing in north-west Europe, more likely limiting the upside potential for now,” said Bacila.

“Wind power output is expected to rise heavily in the next two weeks in Germany, reducing coal burning and allowing power utilities to replenish coal stocks from ARA ports.”

Further forward, a still heavily backwardated market should see prices increase to the level of recent prompt deliveries, Shubin added.

“We predict prices to lift when the contracts will approach delivery. Volatility is expected due to uncertainties in Chinese mining policy. But most of the action is expected in prompt, not so much for the Cal-18 contract.”

Backwardation is when prompter contracts trade at higher levels than those further out.

Reporting by:
James Allen
19:25, Thursday, 26 January 2017