Nena News

COAL – Front-year API 2 rises to 2-week high

(Montel) Front-year European paper coal prices rose to a two-week high on Thursday as cold weather looked set to lift demand from the power sector and amid a rise in Asian contracts.

The front-year API 2 contract rose on Thursday to a session high of USD 67.15/t, the highest since 7 April, according to Ice data. It was last seen at USD 66.70/t, up by USD 0.95 week on week. 

Further in, the Q3 contract fell USD 1.33 week on week to close Thursday at USD 73.30/t.

On the physical market, the Global Coal rolling delivered ex-ship, Amsterdam, Rotterdam or Antwerp (Des ARA) index was last assessed at USD 74.29/t, down by USD 0.18 week on week.

The current session’s gains in the paper market in part reflected impeding colder weather across Europe and record low hydro levels, which should increase coal demand from the power sector, said players.

Cold, low hydro levels
Temperatures across Europe are set to fall to as low as 5C below seasonal norms next week, according to Swedish forecaster SMHI. 

French hydropower reserves fell to 23.4% of total installed capacity at the end of last week, their lowest level ever recorded since RTE began publishing data in 1997, the TSO said on Wednesday. 

“Coal consumption in Europe will rise in the next days amid the lingering cold spell and a strong fall in wind power output, but supply from Colombia, US and Russia should be healthy at the moment,” said Diana Bacila, an analyst at Oslo-based consultancy Nena.

“However, low Rhine river levels indicate power utilities are facing higher costs to bring coal from the ports, which might delay restocking. Moreover, gas power should continue displacing coal power in Germany, partly offsetting the weather-driven surge in coal demand.”

Australia disruptions
European coal contracts were also eying lingering export disruptions in Australia caused by widespread flooding in the wake of cyclone Debbie, said players.

The front-quarter Newcastle (Australia) contract traded last on Ice at USD 78.25/t, up USD 0.75 from prices at the close last Thursday.

“In Australia, [although] the tightness is easing as the rails have reopened or are expected to reopen ahead of previous announcements… exports will remain disrupted in the next two months,” said Bacila.

“Combined with heavy rains in Indonesia, supply risks in the Pacific sustain ahead.”

Three out of four coal systems operated by Australian rail operator Aurizon, which make up the Central Queensland Coal Network (CQCN), have now reopened to coal trains and are operating under restricted conditions, with some reduced capacity. 

The offline Goonyella system is due to be re-opened on 26 April.

“We now estimate a 16.1m tonnes reduction in throughput, only marginally lower than our original estimate of 16.2m tonnes,” said Wood Mackenzie in a note this week in reference to the disruptions in Australia.

“This includes 9.3m tonnes of hard coking coal, 2.8m tonnes PCI, 0.7m tonnes of semi-hard and soft coking coal and 3.2m tonnes of thermal coal.”

Indian demand rising
Indian demand was also picking up, a Singapore-based coal analyst said.

Indian coal imports totalled around 12m tonnes in March, just above levels in the same month last year, and up from under 9m tonnes in both January and February this year, he said.

“Coal demand is finally flat year on year after an atrocious first couple of months,” said the analyst.

However, prices in China were falling, a potential bearish driver to European contracts, said Bacila.

“In the Pacific, China’s Bohai Rim coal prices declined below 600 Yuan/t, falling in the supervision area set by the government. We assess the Chinese government will not intervene with constraining working days in the coming months.”

Reporting by:
James Allen
20:27, Thursday, 20 April 2017