Nena News

END OF DAY – Coal falls 2% after China drops output curbs

(Montel) Front-year coal prices for delivery to north-western Europe collapsed on Wednesday to their lowest level in nearly six weeks after media reports Chinese officials could back away from a return to production curbs. 

The 2018 contract fell as far as USD 63.90/t on London’s Ice exchange and was last seen trading at USD 64.55/t, down USD 0.35 on the day. 

“The [Chinese] government sees the [supply] balance is pretty tight at the moment,” said Diana Bacila at Oslo-based analyst Nena. “They do not want to induce further tightness, therefore they have decided not to go back to limited production.”

Observers had expected China to reinstate restrictions by the end of this month, she added but reports indicate Beijing will not force mines to cut output if price remain stable.

China, which consumes nearly half the world's coal, began to limit coal mining to 276 days in the year last April to curb oversupply and address environmental problems but loosened this in November back to 330 days as imported coal prices reached intolerably high levels.

The measure was only supposed to last through the winter but on Tuesday the responsible National Development and Reform Commission (NDRC) handed power back to local governments to determine whether or not to carry out the cuts. 

Bacila pointed to additional pressure on European coal prices from weaker gas, which has led to some fuel-switching among generators in Germany, as well as the end of the winter period and the start of the shoulder season for coal demand.

Gas, oil slide
Spot prices for gas on Europe’s most liquid hub, TTF in the Netherlands were down EUR 0.30 at EUR 16.25/MWh and earlier touched as low as EUR 16.13/MWh, extending their lowest level since early December.

Meanwhile, the front-month contract for Brent crude North Sea oil also traded lower, falling 1% to USD 55.35/bbl, down USD 0.56 on its previous close. 

News of Chinese crude oil imports reaching 8.3m bbl/day in February and potential extensions to Opec production curbs beyond the first half of 2017 had failed to support prices, analysts at Germany’s Commerzbank said in a note.   

Weighing on sentiment, American Petroleum Industry (API) estimates suggested US crude oil stocks climbed by 11.6m bbl for the week ending 24 February, around 10m more than expected.

This raised the likelihood official Energy Information Administration (EIA) data, due out this evening, will show an unusually large increase too.

The EIA has revised up its expectations for US oil production this year by 200,000 bbl/day to average 9.21m bbl/day and sees this growing to 9.73m next year.

The expansion was significantly more aggressive than International Energy Agency estimates, which see this growth happening over five years, said JBC Energy analysts.

Reporting by:
Nathan Witkop
17:25, Wednesday, 8 March 2017