Nena News

MONTHLY – Coal prices may slip on high stocks, low demand

(Montel) European coal prices may slip this month, after reaching multi-year highs in August, on high stocks and muted demand, yet support is likely to persist from the Pacific basin and technical indicators, participants said on Friday.

The front quarter API 2 contract ended last month at USD 84.57/t, up 4.5% from July’s close, while the Cal 18 contract was 3% higher at USD 77.50/t.

The latter contract reached a three-year high of USD 79.60/t on Tuesday.

On the physical market, the Global Coal Des ARA index was assessed on 31 August at USD 89.23/t, up 6.5% month on month.

“Prices might decline marginally as we enter into autumn, as weather-related disruptions ease and rail maintenance in Russia ends,” said Diana Bacila, senior analyst at Oslo-based Nena, adding however European coal prices will remain highly dependent on developments in the Asia-Pacific region.

Pacific basin supply has been hampered over the past month due to heavy rains in Indonesia – the world’s largest thermal coal exporter – rail disruptions and strikes in Australia, rail maintenance in Russia and heavy rains in north China, she noted.

The Global Coal Newcastle index – an important benchmark for the Asia-Pacific coal market, and driver for global prices – was last assessed at USD 98.56/t, having reached a nine-month high of USD 102.21/t last Thursday.

“Coal pushed up a lot through August, with the tightness led from the Asian market,” said Alan Richards, an analyst at Utilyx.

“If the adverse weather in China and supply restrictions in Australia persist we could see further gains in the coal price. A lot will depend on the weather in China,” he said.

“Global bullishness is not easing,” said Wayne Bryan, an analyst at Alfa Energy, in particular citing the potential for strong Indian demand – due to low hydro levels and stocks –, mine safety inspections in China and weather-related transportation issues.

Furthermore, there were some bullish technical signals for the API 2 Cal 18 contract, said Tom Høvik, head of Montel’s technical analysis services.

“It seems likely we could see this product entering and establishing itself in the lower USD 80/t-zone by the end of September,” he said.

European lull
But despite the recent API 2 price gains, European physical trading activity remained extremely muted in August, with just nine cargoes for delivery in Amsterdam or Rotterdam trading via broker Global Coal, compared with 61 in the same month last year.

There was little incentive to purchase cargoes at such high levels, with combined stocks at four key European dry bulk terminals ending the month around 55% higher than at the same time last year, at 5m tonnes, Montel data showed.

“European coal burn will slowly increase, as the market begins to head out of the summer period, but there is some way to go before it starts eating into these stocks,” said Xavier Prevost, senior coal analyst at Pretoria-based XMP Consulting, adding “a fair amount of material” is scheduled to arrive at Europe’s ports over the coming weeks.

“Bearing in mind the fundamental picture in Europe and how far coal prices have come these last few weeks, it's little surprise they are correcting down,” he said.

Reporting by:
Laurence Walker
09:55, Friday, 1 September 2017