(Montel) European coal prices continued to firm this week amid stronger oil and a weaker dollar after reaching a record low in January, even though demand in the region remains lacklustre, sources said on Thursday.
Cal 17 API 2 coal traded up to a week’s high of USD 39.40/t this morning before retreating to USD 38.85/t on Ice. The contract has rallied 3.6% since closing at a record low USD 37.49/t on 20 January.
Stronger crude oil prices and stabilising foreign exchange rates were widely reported to be supporting coal in Europe, while some prompt demand to rebuild inventories has also underpinned the market, traders said.
“Oil has been gaining support lately and has not fallen below USD 33/bbl,” Diana Bacila, an analyst atNena in Oslo, told Montel.
“[Producer] currencies are not depreciating further, which is a positive factor for coal.”
Oil recovery
Brent has recovered by almost 27% since reaching its year-to-date low of USD 27.87/bbl, while the Russian ruble has climbed by around 15% against the US dollar since falling to a record 85 rubles last month, according to xe.com.
The front-month contract for Brent crude North Sea oil was last seen up USD 0.31 at USD 35.35/bbl.
”Oil explains a lot. The correlation with oil is so strong that we can’t disregard it,” a European trader said. “[But] demand is elsewhere than in Europe.”
The GlobalCoal Des ARA index continued to rally this week, gaining 7.5% from its mid-January low to end Wednesday at USD 46.60/t. Physical deals for March delivery were reportedly concluded on the platform at as high as USD 46/t Des this week.
“People are restocking this week after a cold spell in most regions,” Bacila said. “The weather may have impacted production and maybe some deliveries to export ports.”
Inventories in the ARA region fell to the lowest since at least 2013, according to data collated by Montel.
Further out
However, demand further along the curve is not seen to be reviving, and SSE’s proposal to close three of the four units at its Fiddler’s Ferry coal-fired station in the UK by 1 April is “a sign of the times”, one UK trader told Montel.
The Fiddler’s Ferry closure may eat further into UK imports of Russian coal, a European-based analyst said.
UK purchases of Russian fuel in the third quarter of 2015 dropped by half from the previous period, according to official UK data.
However, the analyst also noted Russian exports last year were steady at around 150m tonnes, which suggested that the overall market remains very well-supplied.
One source told Montel that Russian rail tariffs this year are set to rise by at least 7.5% in an effort to keep up with inflation that was estimated at 13% in December.
“This will increase costs all through the chain but it also shows that the government won’t let the mine owners enjoy all the price gains they’ve made,” the source added.
Reporting by:
Alessandro Vitelli
newsdesk@montel.no
17:06, Thursday, 4 February 2016