Nena News

MONTHLY – Coal faces “mixed drivers” in April

(Montel) European coal prices face “mixed drivers” this month, with ample regional supply and the bearish influence of lower Chinese imports potentially offset by near-term weather-related disruptions in Australia and supportive technical indicators.

The front-year API 2 contract closed on Thursday, the last trading day of March, at USD 75.90/t, down 4.2% on the month.

It traded last up USD 0.80 at USD 76.70/t, on Ice Futures.

On the physical market, the Global Coal Des ARA index was last assessed at USD 76.83/t, down USD 1.78 from the end of February.

“There are some mixed drivers at present, so prices could move sideways [over the coming weeks],” said Diana Bacila, senior analyst at Oslo-based Nena.

Newly imposed restrictions on China’s coal imports, coupled with increased domestic production and the prospect of higher hydropower generation levels, could have a bearish impact on the seaborne market.

Yet lingering restocking demand from South Korea and India could in part offset weaker Chinese import demand, Bacila said.

“It currently looks like another month with bearish potential,” said a coal analyst with a European trading house, noting Chinese domestic demand “appears weak”, with the country’s inventories replenished “fairly quickly” in February-March.

There were some supportive technical signals, said Tom Høvik, head of Montel’s technical analysis service.

A close above USD 76.10/t for the Cal-19 API 2 contract could trigger a rise up to USD 80-83/t over the next couple of weeks, he said.

Australia cyclone
Furthermore, in the near-term, weather-related supply issues in Australia – the world’s number-two thermal coal exporter – could lend support to prices, market participants said.

A cyclone is threatening the country’s coal exports, with “destructive winds” expected to impact the state of Queensland’s coast until at least Thursday, according to the Australian Government Bureau of Meteorology.

A number of key coal ports have suspended operations, as a precaution, thereby impacting export volumes this week, albeit mainly of coking coal, according to sources from the region.

In response, the front-month Ice Newcastle (Australia) contract traded last up USD 0.80 to USD 91.70/t.

“North Queensland Bulk Ports corporation is bracing for the potential impact of destructive winds and heavy rainfall,” said the corporation’s acting chief executive Rochelle Macdonald.

European view
In Europe, coal burn is expected to weaken this month, after strong generation levels in March, participants said.

According to Nena estimates, seven key European consumers – including Germany, Spain and the UK – burned around 8.2m tonnes of coal last month, up from just 6m tonnes in the same month last year.

“But [the coal burn] will definitely come down this month,” said Nena’s Bacila, noting a seasonal decline in demand could see consumption average 5-6m tonnes per month in the second quarter.

At the same time, coal stocks at northwest European dry bulk terminals have risen to their highest levels since the start of the year, of 4.42m tonnes, amid weaker demand from German utilities, Montel reported earlier.

A source at one terminal said there was a “normal arrival programme”, but barge shipments to inland destinations were “low”.

Reporting by:
Laurence Walker
15:37, Tuesday, 3 April 2018