(Montel) Despite expectations of further production cuts this year, market participants expect prices in March to remain under pressure, as oversupply and high inventory levels persist.
At the time of writing, the Cal 16 API 2 contract was in the USD 62.75-64.10/t bid-offer range, according to broker data.
The Q2 and Cal 16 contracts ended February up 9% and 7%, respectively, month on month, at USD 63.15/t and USD 63.50/t, while broker Global Coal assessed its physical Des ARA coal index at USD 62.37/t on 28 February, up around 9% from the end of January.
“I can see further downside for prices in March,” said Diana Bacila, coal analyst with Oslo-based Nena, adding an anticipated shortfall in Colombian exports had already been priced in by market participants, while European power demand would ease in the spring months.
“We’re still in a bearish world, as the market is oversupplied,” said Andy Sommer, senior energy analyst with Switzerland-based Axpo Trading, adding however the 2015 global supply glut would not be as severe as earlier anticipated.
“The low USD 60s are emerging as a strong support level, but the market still needs to digest relatively high stocks,” said Guillaume Perret, director of consultancy Perret Associates.
Coal stocks at four key northwest European dry bulk terminals were last week pegged at 5.6m tonnes, 7% higher than at the same time last year, according to data gathered by Montel.
And the market continued to view a potential 500,000t-1m tonnes drop in Colombian supply – due to a night-time halt to operations at the country’s main coal carrier, Fenoco, which began in mid-February – with some apathy.
“At this stage, we’re discounting this element, as there is likely to be enough spare rail capacity during the day [to limit the supply shortfall] and demand in Europe is not sufficient to make this a critical price driver,” said Perret.
But from a technical viewpoint, the market could still see some further upward movement.
The Cal 16 API 2 contract could trade up towards USD 68/t in March, said Tom Høvik, head of Montel’s technical analysis services.
Glencore cuts
A price hike in late February following an announcement by global mining and trading firm Glencore that it would reduce Australian coal exports by 15m tonnes this year due to market oversupply, was likely to be short-lived.
“Fifteen million tonnes is not much to worry about in the near-term, but if more producers follow, then it could have more of an impact,” said Bacila.
The announcement followed reports in late January that Glencore was considering cutting output at its Optimum coal unit in South Africa by 5m tonnes a year. A final decision is expected by late March.
“Production growth has gone unchecked, particularly in Indonesia, so maybe now we’re getting to the pain level, people will start cutting capacity,” said a Christian Marston, head of physical coal trading at Singapore-based INTL Asia.
“Last year, producers were fighting to stay in the market, by cutting costs and doing everything they could to keep operating, but now this is over for many of them as there are no more costs to be cut,” said Bacila.
Reporting by:
Laurence Walker
laurence@montel.no
08:51, Monday, 2 March 2015