COAL OUTLOOK – Cal 18 to retreat further from recent highs

(Montel) European front year coal prices should continue to retreat from recent four-year highs as forecasts of wind and mild weather in Europe depress coal burn, participants said on Monday.

The API 2 front-year contract traded last down USD 0.62 at USD 82.95/t, moving further away from last Thursday’s near four-year high of USD 86.20/t on Ice Futures.

“Coal prices could face some marginal declines in Europe this week amid less coal burn due to higher wind power output and milder weather, while Asian prices could stabilise ahead,” said Diana Bacila, a coal analyst at Oslo-based consultancy Nena.

“In the Atlantic, Colombia’s exports were low in September and the ongoing rainy season risks keeping exports depressed, thus requiring higher volumes from Russia and the US to balance demand.”

Near term weather forecasts suggest significantly above normal wind in Germany, which “would be a drag on coal burn in Europe”, said a London-based analyst at a commodity trading firm.

Pacific market
Ongoing risks of supply disruptions in Australia continued to threaten exports, though shipments could pick up from Indonesia, noted market participants.

Workers at one of Australia’s largest coal haulage companies, Pacific National, have vowed to take a second consecutive weekend of strike action, threatening thermal exports from the key thermal-coal producing state of New South Wales, a union said on Monday. 

The Rail, Tram and Bus Union (RTBU) has notified Pacific National of plans for a second 48-hour stoppage, beginning at noon on Saturday. The strike action follows the two-day stoppage that started midday on 21 October.

In Indonesia, the world’s biggest exporter thermal coal, could see shipments improving following disruptions that had been affected by significant rainfall.

Bearish oil, technicals
Coal prices will also likely remain closely correlated with oil prices, said market participants. The front month Brent North Sea crude benchmark traded last down USD 0.15 to USD 57.60/bbl.

On the physical market, the Global Coal Des ARA index was 4.5% higher week on week at USD 88.63/t.

From a technical viewpoint, the Cal 18 API 2 contract looked slightly bearish over the short term, said Tom Høvik, head of Montel’s technical analysis services.

“Last week we did not manage to hold on to its gains when USD 86.00-plus was seen, and the market ended up with a bearish ‘shooting star pattern’ from the weekly candlestick,” he said.

“When such a bearish signal is coming from a resistance level it will technically be considered being valid,” he said, noting the market could test USD 81.60/t “during the next few days”.

Prices & Spreads

*Montel assessments

Stocks
European port coal stock levels as of 23 October, obtained by Montel from the respective terminals (against previous week):
EMO (Rotterdam) – 2.5m tonnes (+0.2m tonnes)
OBA (Amsterdam) – 1.92m tonnes (+0.02m tonnes)
EBS (Rotterdam) – To be added later
Ovet Vlissingen/Flushing – 0.41m tonnes (-0.045m tonnes)
Ovet Terneuzen – 0.075m tonnes (-0.02m tonnes)

Reporting by:
James Allen
james@montel.no
12:14, Monday, 23 October 2017