COAL OUTLOOK – Australia disruptions to lift API

(Montel)The Cal 18 API 2 contract traded last on Ice Futures at USD 67/t, up USD 1.30 from Friday’s close, after initially rising to USD 67.35/t, the highest since 2 March.

On the physical market, the Global Coal Des ARA index was last assessed, on Friday, at USD 70.39/t, down 0.55% week on week.

Flooding in the wake of cyclone Debbie, which hit Australia’s coal-rich state of Queensland last week, has halted operations on four rail routes servicing coal export hubs, potentially hindering the country’s exports for several weeks. 

The June Newcastle contract rose USD 3.35 to USD 85/t in trading on Ice Futures.

“USD 70/t reachable”
“Coal prices are reacting after Queensland authorities announced the railway network needs up to five weeks to recover after cyclone Debbie,” said Diana Bacila, an analyst at Oslo-based consultancy Nena, adding that the potential supply loss should be around 20m tonnes.

“The region is mostly producing coking coal, but substitution between coking and thermal, and demand from Far East buyers looking to replace Pacific volumes will tighten up the Atlantic balance and offer support to thermal coal prices.”

The disruption should see the front-year API 2 contract testing USD 70/t “this week”, said a Finland-based coal trader.

“That should be easily reachable if the situation continues,” said the trader. “So the sooner operations return to normal in Australia, the rise should stop.”

Otherwise bearish
Fundamentals, otherwise, were neutral to bearish, players said.

“On the other hand, coal-to-gas switch in Germany and UK and renewable output in continental Europe will continue weighing on coal demand, partly offsetting the upside risk for API2,” said Bacila.

Australia, Colombia, the US and Indonesia are all restarting production in response to high prices, said analysts at Bank of America Merrill Lynch.

“And seaborne demand, partly in response to the high prices, is contracting in the world outside China, from India to Europe,” the analysts said in a note on 31 March.

Prices & Spreads

*Montel assessments

Stocks
European port coal stock levels as of 3 April, obtained by Montel from the respective terminals (against previous week):
EMO (Rotterdam) –  2.2m tonnes (+0.3m tonnes)
OBA (Amsterdam) – 2.25m tonnes (unchanged)
EBS (Rotterdam) – 0.050 tonnes (-0.025)
Ovet Vlissingen/Flushing – 0.27m tonnes (-0.04m tonnes), combined thermal and coking
Ovet Terneuzen – 0.165m tonnes (-0.015m tonnes), comprising petcoke, anthracite and coke

Events
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Reporting by:
James Allen
james@montel.no
15:55, Monday, 3 April 2017

Editing by:
Jeff Coelho
jeff@montel.no
15:55, Monday, 3 April 2017