(Montel) European coal prices are set to hit fresh market lows over the coming days and weeks as declining oil prices and weak producer currencies allow companies to keep supplying to an already oversupplied market.
The Cal 17 API 2 contract fell to yet another contract low of USD 38.40/t in current trading, down 4.4% from a week ago. It was last seen trading at USD 38.50/t on Ice.
On the physical market, Global Coal’s Des ARA index was last assessed at a multi-year low of USD 45.44/t, down 0.3% for the week.
“Even though in the coming week, API 2 prices may receive some support from the recent strengthening of the euro and the cold spell expected to hit the continent, the rise will be short-lived, with values returning on a downward trend once the weather turns mild,” Diana Bacila, an analyst atNena, told Montel.
Coal prices have stared the year in continued bearish vein, hitting new lows in line with losses on the crude oil markets, and amid global oversupply and lacklustre demand.
Weak crude
Declining crude oil prices, coupled with a stronger US dollar against producer currencies, has resulted in lower production and transportation costs for miners, thereby allowing them keep supplying coal to an otherwise oversupplied market.
On Thursday the front-month contract for Brent crude North Sea oil dropped to its lowest level since February 2004 of USD 29.73/bbl, but was last seen marginally higher than Wednesday’s close, at USD 30.59/bbl.
“If we assess the impact of a stronger USD against miners’ currencies along with the changes in coal prices, Colombian miners are now seeing the same prices as a month ago, while Russian miners see a gain of more than 5% due to the weakening of the Rouble,” said Bacila.
“With oil prices around USD 30/bbl, I won’t be surprised to see API 2 falling to USD 38/t in the short-term.”
China concerns
Chinese economic development was the “big question mark” at the moment as it will impact import demand, said a trader.
“The nervousness in the Chinese stock market at the beginning of the year is, I think, the biggest reason why commodities in general, and coal specifically, are dropping,” he said.
Chinese coal and lignite imports in 2015 plunged 30% year on year to 204m tonnes, as the country took steps to reduce its reliance on foreign supplies, while increasing its renewables usage, customs figures showed on Wednesday.
“Chinese utilities are seeing healthy stocks ahead of the Chinese New Year and the weaker Yuan will reduce their import demand,” said Bacila, noting Indian coal demand was also weak due to poor business conditions and strong domestic supply.
“With freight rates plunging lately, European buyers can now find coal from Colombia and Russia priced at the same level, freight included. This will increase competition in the Atlantic.”