Nena News

Atlantic-Pacific coal price spread widens to USD 20

(Montel) European front-quarter coal prices have weakened to around their widest discount to the equivalent Pacific-basin Newcastle contract in years, in part driven by slack Atlantic-basin demand.

The API 2 front-quarter contract traded last at USD 72.35/t, on Ice Futures, while the Ice Newcastle contract was at USD 92.10/t.

Further along the curve, the spread was still significant – but less pronounced – with the front-year API 2 and Newcastle contracts at USD 76.45/t and USD 87.50/t, respectively. 

“There is a lack of demand for [European coal],” said Guillaume Perret, director of consultancy Perret Associates, pointing to rising temperatures and ample supply. 

“Also, the market is still digesting [the prospect of] the closure of coal and lignite plants – although still some years away,” he said, regarding the Germany’s recently announced plans to close 12.5 GW of coal-fired capacity by 2022 and the remainder by 2038. 

Pacific support 
At the same time, there was some tentative support for the Newcastle contract, participants said. 

Newcastle prices generally receive support at this time of year, as Australian producers and Japanese buyers begin negotiations for annual financial year term supplies, Perret said. 

And Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo Nena Analysis, also cited the supportive influence of South Korean and Chinese government policies, which incentivise high-quality coal imports – such as Newcastle supplies – to meet environmental goals. 

On the flip side, European plants were considered more flexible, with the assumption that they could handle a variety of coal qualities, rather than just premium grades, he said. 

“[This induces] relatively low demand for high-quality coals when price discounts of other coals are large, like now,” he said. 

“[But] I see the front-end spread is too wide and not sustainable, given very low freight rates making cross-basin trading attractive, thus I expect the spread between API 2 and Newcastle to shrink.” 

Reporting by:
Laurence Walker
16:51, Tuesday, 12 February 2019