Nena News

Higher coal prices needed to spur supply growth – analyst

(Montel) European coal prices will weaken over the next two years amid ample supply but must recover to the USD 80-100/t range in the ensuing period to further stimulate supply growth, an analyst said on Thursday.

The higher prices would be required to encourage investment in boosting production in the next decade, particularly to meet growing power generation demand in southeast Asia, said Diana Bacila, senior analyst at Nena, speaking at Montel’s Nordic Energy Days event in Oslo.

The anticipated near-term price weakness was due to a number factors, such as higher domestic Chinese production, the restart of nuclear reactors in Japan and South Korea and increased supply from most exporting nations, she said.

In 2018, thermal coal supply should increase by 41m tonnes – or 5% – to 917m tonnes, added Bacila.

Nevertheless, the API 2 front-year contract traded last at USD 88.90/t – up by more than 20% from March’s eight-month low of USD 72.50/t – while the Cal 20 was seen at USD 83.40/t, on Ice Futures.

This year’s coal price rally was mostly been driven by Chinese demand but supply had also tightened, the analyst said, noting while Russia, South Africa and Indonesia had been investing to increase supply, Australia had not. 

Russian and Indonesian supply should continue to increase over the coming years although a question mark hung over South Africa’s future output potential, due to logistics constraints in moving coal from mines to ports, added Bacila. 

However, Colombia, which invested heavily in previous years, already had the capacity in place to significantly increase supply but simply required higher prices.
 

 

Andrés Cala 
andres@montelnews.com
14:14, Thursday, 23 August 2018