Nena News

COAL – High stocks, sluggish demand weighs on API 2

(Montel) European coal prices remained just off four-month lows on Thursday as traders continued to eye healthy terminal stocks and sluggish demand.

The Q4 API 2 contract was last pegged around USD 56.50/t, around flat with Friday’s close, while the Cal 16 was at USD 55.85/t, down from USD 56.25/t at the end if last week, according to exchange an broker data.

On Tuesday, the contract fell to USD 55.75/t on Ice Futures Europe, the lowest since 8 April.

On the physical market, the Global Coal Des ARA index was last assessed at USD 57.22/t, down 0.8% on the week.

“There is a mix of bullish and bearish drivers playing out at the moment, but we see the downside more likely in the short-run for API2,” said Diana Bacila, an analyst at Oslo-based consultancy Nena.

“One bearish driver is related to low river levels in Continental Europe, which have been denting barging activity on the major routes from NW European ports to power plants,” she said, noting this was a negative for coal prices in the short term as it leaves inventories at ports at higher levels and reduces inventories at power plants.

Coal stocks at four key north-west European dry bulk terminals were last seen at around 6m tonnes, according to Montel data.

But stronger precipitation could ease this disruption and as transportation conditions improve, restocking demand from utilities may offer support to API 2 “later on”, Bacila added.

Prompt demand
However, “some prompt demand” was also offering marginal support to nearby contracts, limiting losses, a UK-based coal broker.

“But demand is not huge, as there's a decent amount of tonnage on the stockpiles in Europe and the burn has ticked a little lower in Germany,” he said.

Although Chinese import demand may have increased recently after dry, hot weather increased coal burn amid lower hydropower output, an expected typhoon this weekend in south China should again limit material requirements in the region, added Bacila.

“India also has three more weeks of monsoon rains which combined with low electricity demand and higher coal output still keeps importers on the sidelines.”

In fact, falling demand could see API 2 prices fall to USD 50/t, added a Nordic-based trader.

“At that point we should start seeing more production going offline, which might be thing that eventually starts lifting coal prices,” he said.

Reporting by:
James Allen
20:58, Thursday, 6 August 2015