Nena News

COAL – Bearish Asian market pressures API 2 prices

(Montel) European paper coal prices continued to take direction from a bearish Asia-Pacific market, despite low hydropower levels offering support to physical prices, participants said on Thursday.

The front-quarter API 2 contract traded last at USD 71.55/t, down 1.9% from the close last Thursday, while the Cal 18 fell by 2.3% to USD 65.10/t, according to Ice Futures Europe. 

On the physical market, the Global Coal rolling delivered ex-ship, Amsterdam, Rotterdam or Antwerp (Des ARA) index was last assessed at USD 74.39/t, up 2% week on week. 

Declines on the Newcastle (Australia) paper market had triggered the API 2 price fall, said players.

The Asia-Pacific coal benchmark Newcastle index has dropped to an 11-week low, as sluggish spot demand and improving supply pressured the market, said market participants.

The Global Coal daily Newcastle (Australia) rolling index was last assessed at USD 78.39/t, down by 1.7% week on week and the lowest level since 17 February.

“It’s China,” Andrey Shubin, a Norway-based analyst at SKM Energy, told Montel.

“Prices there have declined sharply. It’s the combination of increased domestic supply with the end of Daqin railway maintenance and lower spring demand.”

The Daqin rail line links the country’s top coal producing region of Shanxi with its largest coal port of Qinhuangdao.

Chinese state-owned producer Shenhua has also indicated it expected coal prices to continue falling amid rising domestic supply, said a Finland-based trader.

“Falling demand at this time of the year is no news but growing supply naturally is,” said the trader.

“China is once again showing the way for the market.”

Slide to continue?
Although fundamentals in Europe are not quite as bearish as those in Asia, API 2 prices would likely continue to slide over the short term, said players.

“Stronger supply in the Pacific will reduce Asian buyers’ demand for Atlantic coal, easing the price support for API 2,” said Diana Bacila, an analyst at Nena.

“Coal burn in Germany may rise next week on less wind power output but higher river levels lift coal availability for utilities.”

European physical prices had likely risen over the past week because of low hydropower stocks across the continent, supporting coal demand, despite a lack of recent physical trades, the trader said.

“That is the reason why I don’t see API 2 as bearish as I see China coal prices at the moment but lately China has been setting the pace, so there’s probably some downside for API 2 also.”

French hydropower reserves fell to 20-year lows last month, according to data from TSO RTE. 

“API 2 prices could soon fall to the high-to-mid USD 60s at the front end of the curve but should then jump by mid-summer as Asian demand picks up,” said Shubin.

Reporting by:
James Allen
16:05, Thursday, 4 May 2017