Nena News

MONTHLY – Restocking activity to underpin coal prices

(Montel) European coal prices could continue to gather support over the coming month, as post-winter restocking activity kicks in, market participants said on Tuesday.

Prices could rise by “a few dollars” over the course of the month, although waning seasonal generation demand and relatively abundant supply will likely cap gains, they said.

“There is a strong mix of bull and bear drivers for February, which should help API 2 prices to stabilise,” said Diana Bacila, senior analyst at Oslo-based Nena, noting high coal consumption levels last month would likely result in widespread restocking.

Nena’s EU 7 coal burn index – which includes generation by Spain, Germany, UK, France, Finland, Denmark and Italy – was pegged at 12.3m tonnes in January, up by 23% on the month and 26% from the same month last year.

Rising river levels in Germany – which had been critically low and hampered coal barge movements in recent weeks – may allow German utilities to replenish stocks, thereby offering the market further support, although strong Russian, Colombian and US export volumes to the Atlantic basin could “limit further upside risk”, she said.

In January, the API 2 second-quarter contract rose 8% to end at USD 75.30/t, while the Cal 18 contract finished up 4% at USD 67.05/t.
For the physical market, however, the Global Coal Des ARA [delivered ex-ship, Amsterdam, Rotterdam and Antwerp] rolling index ended January down 13% from the previous month’s close, at USD 83.01/t.

More supply
“Most arbitrage windows [to Asia] appear to be closed now, which should add to supply in Europe, but inventories at European plants are on the low side, so restocking could remain higher over the next couple of months,” said Andy Sommer, senior analyst at Axpo Trading.

“But prompt prices could still come off further, if the mild weather continues,” he said, noting the Cal 18 was, however, at a “more sustainable and justified” level.

A German utility analyst said while there was likely to be some plant stock replenishment over the coming month, much of this may be drawn from port stocks.

“ARA stocks are quite high, so utilities could simply shift existing stocks to plants, rather than increasing spot purchases” he said.

Combined stocks at four key ARA terminals were this week pegged at 4.9m tonnes, in line with a one-year high recorded in early January.

Other drivers
“The weather will remain an important driver in Europe and Asia, but as spring approaches, it will become less important,” the utility analyst said, adding market participants would instead watch for fresh news about China’s domestic production policy.

But no major decisions were expected until at least mid-March.

In November, China’s government reversed curbs on coal production for all mines, restoring 54 working days cut in April from a yearly 330-day quota allotted to domestic mines until at least the end of winter heating season.

Technical indicators, meanwhile, show some further buy signals for the Cal 18 API 2 contract, said Tom Høvik, head of Montel’s technical analysis services.

“Most of technical signals are in favour of a test of the USD 71.40/t resistance level in February, and an eventual break above this level would most likely pave way for USD 79/t thereafter.”

Reporting by:
Laurence Walker
10:08, Wednesday, 1 February 2017