Nena News

MONTHLY – Front-year coal may surpass USD 70/t

(Montel) Front-year European coal prices may continue to rise, above USD 70/t, in June as a possible tightening of supply and technical signals trigger some gains but the market is currently well supplied, market participants told Montel.

The front-quarter API 2 contract ended last month at USD 75.35/t, up 3% from April’s close, while the Cal 18 contract was a marginal USD 0.13 higher at USD 66.61/t.

The latter contract traded early in the current session at USD 67/t.

On the physical market, the Global Coal Des ARA index was assessed on 31 May at USD 77.36/t, up 5.7% month on month, while the Asia-Pacific benchmark Newcastle index was 6.8% lower at USD 74.44/t.

European physical trading activity picked up somewhat in recent weeks, with seven cargoes for delivery in Amsterdam or Rotterdam trading via broker Global Coal last month, compared with just one in the previous month.

“Colombia’s rainy season is also over and the arbitrage to Far East buyers – especially to South Korea – is closed, thus more supply and less competition should increase volumes available in the Atlantic,” said Diana Bacila, senior analyst at Oslo-based Nena.

At the same time, coal stocks at four key northwest European dry bulk terminals totalled 5.41m tonnes at the end of May, around 2m tonnes higher than at the same time last year, Montel data showed.

And there is “very little” scheduled to arrive over the coming two months, according to a source at one large Dutch dry bulk terminal.

Bullish potential
But on the upside rail maintenance in Russia – on lines serving Baltic ports – may result in renewed demand for US coal, resulting in higher prices, Bacila said.

“A scenario with tight supply in the Atlantic combined with a hot summer in Europe, low hydropower in continental Europe and the Nordics and low renewables could drive API 2 prices up more than USD 5,” she said.

“If, on top of this, you add a hot summer in Asia and low hydro in China, API 2 could easily surpass USD 80/t in the third quarter,” she added, noting however a rise in prices could in turn incentivise miners to ramp up production.

The Cal 18 API 2 contract may also gather some support from supportive technical signals, said Tom Høvik, head of Montel’s technical analysis services.

“We still find the market within the January USD 60.50-70.25/t range but the technical angle for June is on the bullish side,” he said, adding the upper boundary might be tested this month.

“An eventual break above USD 70.25/t opens technically for the next larger resistance level of USD 78.90/t,” he said.

El Nino return
Meanwhile, the likely re-emergence of the El Nino weather pattern later this year, may offer the market some direction in the coming weeks and months, although its influence could prove both bullish and bearish, said Andy Sommer, senior analyst at Axpo Trading.

Australia’s Bureau of Meteorology said in its latest report there was around a 50% chance—double the normal likelihood—of El Nino developing this year.

“This has implications for supply,” Sommer said, noting it usually results in drier than usual weather across the Asia-Pacific region, which could allow for increased Australian output but might also trigger greater Chinese demand – due to lower hydropower availability.

Reporting by:
Laurence Walker
09:34, Thursday, 1 June 2017