Nena News

Downside risk remains for coal in July amid oversupply

(Montel) The oversupplied Atlantic basin coal market will remain under pressure in July, guided also by weather and gas market developments, with “downside risks” remaining although supplier output curbs may provide some support.

The API 2 front-quarter contract traded last at USD 51.25/t, nearly 9% lower that at the end of May, while the front year was largely flat, at USD 64.25/t, on Ice Futures. 

The former contract on Wednesday reached a three-year low of USD 51/t. 

“It is hard to see anything materially shifting the balance of the current factors driving prices lower,” said independent coal analyst Plamen Natzkoff. 

“Coal stockpiles are ample as is gas in storage, coal demand remains low and there are no signs of large-scale supply cutbacks,” he said. 

Coal stocks at four major Amsterdam, Rotterdam and Antwerp (ARA) import terminals were pegged this week at more than 7m tonnes – 30% higher on the year – while European gas storage was seen last at around 70% of capacity, compared with less than 50% a year ago. 

“Usual suspects” 

A coal analyst with a European trading firm also pointed to the “usual suspects” driving prices over the coming month – in particular “temperatures and precipitation”, Chinese and Indian demand and European gas prices. 

“We continue to see downside risks here,” he said, adding, however, much depended on whether producers began taking more pronounced steps to limit exports, or production. 

Already, Russian coal production in May slumped to a 10-month low of 1.15m tonnes/day. Yet exports conversely hit a multi-year high of 576,000t/day. 

“The API 2 physical price is stabilising around USD 48/t, which suggests producers are likely reacting by withdrawing supply from the market,” said a coal analyst with a European energy firm. 

The Global Coal Des ARA index – a regional benchmark for the physical spot market – was assessed last at USD 49.26/t, having averaged around USD 50/t this month. 

“[But] with ARA stocks full, reloads to Asia will be the driver preventing further price declines,” the analyst said, regarding producer and trader efforts in recent months to ship surplus low-priced, high quality Atlantic basin coal to customers in the Asia-Pacific region. 

Russia, for example, has shipped more than 2m tonnes to Asian destinations from the European loading hub at Ust-Luga, in the Baltic Sea, since the start of the year. 

Colombian concerns
“But Colombian coal is not in the money in China nowadays, due to the pick-up in freight costs, which will limit strong flows into Asia,” the analyst said, adding she did not expect any major upturn in prices, unless there was a “significant disruption”, such as a prolonged heatwave in Asia – driving cooling demand – or more substantial cuts to global production. 

Colombia's thermal coal exports last month were down nearly 6% on the year, to 6.7m tonnes, according to IHS data.

“For miners in Russia and Colombia, the last few months must have been a nightmare [but] if they don’t want to be responsible for balancing the market, we are not even close to the bottom,” said Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo

“I think near-term prices might have reached a floor, after further losses in mid-June, but I expect them to continue trading sideways around these lows,” said an analyst with a London-based consultancy.

Reporting by:
Laurence Walker
10:35, Friday, 28 June 2019