Nena News

MONTHLY – Coal faces further losses as Pacific demand wanes

(Montel) Atlantic basin coal prices will likely take the lead from China and the wider Asia-Pacific market in March, with a relative abundance of supply expected to pressure prices, participants said on Wednesday.

“The main driver for European prices remains the coal market balance in the Pacific,” said Diana Bacila, senior analyst at Oslo-based Nena.

“We still see some upside risk sustaining in the front, amid current tightness in China and restocking by Indian and Asian power utilities,” she said, adding however increased Chinese – and global –production levels could help to pressure curve prices.

The API 2 front-quarter contract traded last at USD 81.70/t, down 6% from a month ago, while the Cal 19 was 4% lower at USD 79/t, on Ice Futures.

The equivalent Pacific basin benchmark Ice Newcastle contracts traded last at USD 99.90/ and USD 87/t, respectively, down by a more modest 1% and 0.5% from the last day of January.

“The API 2 is linked to Asia at the moment, given demand is so horrible in Europe. And when I say horrible, I mean horrendously ugly,” said a coal analyst with a Singapore-based trading firm.

“Supply is not very strong, but demand issues by far outweigh supply issues,” he added, regarding reports of ice-related disruptions to Russian exports, and reduced Colombian availability in the Atlantic, due to an open arbitrage to Asia.

China inventories
“The key question remains around China’s inventory position,” said a coal analyst with a German trading house, noting stocks at six of the largest power plants were reported to have recovered “significantly” in recent days.

“This could mean restocking, and therefore importing, can decrease quite a bit earlier than expected,” he said.

“However, if China’s stocks decline again – due to sharply recovering demand or the reinstatement of import constraints – we could see prices rising.” 

Government restrictions on imported coal deliveries were temporarily relaxed in mid-December amid concerns of a supply shortage over the winter demand period.

“With the Chinese New Year behind us, I expect the drivers for March to be Chinese factors again – production as well as consumption,” said an analyst with a coal trading firm.

“On the supply side, there have been mixed reports regarding Indonesian weather, and that should be clarified in March,” he said.

Heavy rains have hindered exports from Indonesia and Australia – the world’s number one and two thermal coal exporters, respectively – over the past month, providing some support for the market.

Colombian arbitrage
These disruptions, coupled with strong Asia-Pacific restocking demand, resulted in the Global Coal Newcastle index – a benchmark for Pacific basin coal prices – averaging almost a USD 20 premium to the Atlantic benchmark Des ARA index in February.

This has encouraged Colombian producers to export more coal to the Asia-Pacific region, rather than traditional customers in Europe, resulting in some potential tightness in Atlantic supply.

Indeed, March-loading Colombian cargoes were being offered for delivery in South China at USD 96/t, according to one broker.

And this situation will remain for the coming “few months”, said a Singapore-based coal trader.

“South Korean buyers are fed up with quality of Indonesian coal, so they have been looking at alternate supplies, such as US or Colombian,” he said, adding with Indonesian coal prices above USD 70/t, the arbitrage is open for other origin coals.

Indonesia raised its February coal reference price by 5.4% on the month to a 14-month high of USD 101.69/t, Montel reported.

Reporting by:
Laurence Walker
11:43, Wednesday, 28 February 2018

Editing by:
Jeff Coelho
11:43, Wednesday, 28 February 2018