Nena News

COAL – API 2 rises on power jitters, tight Asian market

(Montel) European coal prices rose this week due to aggressive utility bidding activity amid French power market jitters and supportive signals from the Pacific basin.

The API 2 front-quarter contract was last pegged at USD 84.65/t, up USD 2.5 from last Friday’s close, while the front year was USD 1.99 higher at USD 79.25/t, Ice Futures data showed on Friday.

The gains largely reflected strong bidding activity by one particular European utility amid thin market liquidity, market participants said.

Concerns over French nuclear power availability also helped lift contracts, with traders saying the ongoing outages could lead to an increase in coal demand.

“Further nuclear reactors shutdown in France and European gas price developments will remain significant drivers to coal prices,” said Diana Bacila, senior analyst at Oslo-based Nena.

French front-month power contracts jumped to record highs on Thursday after EDF extended the outages at three nuclear reactors, tightening supply and triggering fears over further delays.

Prices also took their cue from a still bullish Asia-Pacific market amid concerns of disruptions to Australian output.

Australian disruptions
Australia, the world’s number-two thermal coal supplier, continues to face strike action at a number of Glencore-owned mines, and workers at one of the country’s largest coal haulage firms have also threatened industrial action. 

The Asia-Pacific benchmark Newcastle index rose on Thursday to its highest level in more than a fortnight amid ongoing threats to near-term supply and despite relatively weak demand from China.

The Global Coal Newcastle index rose 2.9% over the past week to USD 97.80/t – its highest level since 18 September.

“I think it’s just tightness, with some talk about labour action at the [Australian] rail carriers,” said a Singapore-based coal broker.

However, a lack of physical trades and an absence of Chinese buyers capped gains, said players.

Fuel switching
As for the short-term outlook, a surge in wind power in Germany will reduce coal burn next week, though it also risked hampering coal logistics, said Bacila.

Coal unloading at the Wilhelmshaven port in northern Germany was suspended on Thursday “until further notice” after a crane crashed into the sea amid heavy winds. 

Furthermore, with the coal-to-gas switch in Germany favouring coal burn this winter, utilities would likely need to ramp up restocking, fuelling demand.

“High demand from Far East buyers amid sustained tightness in the Pacific also remains an upside risks for API 2,” said Bacila, noting Pacific coal supply remains tight due to the issues in Australia and intensifying rains in Indonesia.

“Moreover, changes to the Chinese coal balance after the government’s call to market players to improve domestic supply should be a major focus ahead.”

Reporting by:
James Allen
12:28, Friday, 6 October 2017