COAL OUTLOOK – Colombia, utilities set to support API 2

(Montel) European coal prices could rise this week due to the threat of a miners’ strike in Colombia and some lingering demand from the power sector, players said on Monday.

The Cal 17 API 2 was last seen at USD 39.10/t, having risen steadily since falling to a record low of USD 36.50/t last Wednesday, according to Ice exchange.

“European coal prices have gained slightly over the last days amid slightly higher oil prices and relatively stable currencies against the USD for Russian and Colombian miners,” Diana Bacila, a Norway-based analyst at Nena, told Montel.

“The combined effect of the change in oil and FX [foreign exchange] has been removing the ‘natural protection’ for miners and preventing them from further lowering their prices, which are now much closer to cash costs.”

Benchmark Brent crude futures were last up USD 1.86, or 5.6%, at USD 34.87/bbl, while US crude futures surged through the USD 30/bbl mark, trading up USD 2.05, or 6.9%, at USD 31.69/bbl.

Colombia strike threat
With traders eying the outcome of Colombian miners’ salary negotiations, the major upside risk came from the supply side, said players.

Pay talks between Colombia’s biggest coal producer Cerrejon and union Sintracarbon are failing and a strike could be called as early as 7 March, the union’s vice president Orlando Cuello told Montel on Friday. 

“The company has not reached an agreement with workers, therefore the next 10 days will be decisive for what happens next,” said Bacila.

“In case the strike starts, European buyers may find replacement cargoes from other miners in Colombia, from Russia and even from the US, if the API 2 month-ahead contract gains up to USD 5, in order to price in that supply.”

The threat of a strike, as well as a rise in oil, meant API 2 prices were likely to rise this week, a trader told Montel.

“I’m still very doubtful that the market could rise much, however. I think oil could re-test USD 36/bbl this week and coal API 2 Cal 17 could hit USD 40/t.”

Power demand
There could also be some lingering marginal support from the demand side, despite the heating season set to soon end in Europe, added Bacila.

“In the next 10 days temperatures in continental Europe and the UK are expected to marginally fall below normal levels, and wind power output in Germany to decline, which is positive to coal burn.”

But Rhine levels were holding above normal and there were no risks for barges, meaning utilities would be able to find cargoes at ARA ports, she added.

Others weren’t so bullish. Although local tightness at Richards Bay meant Colombian coal now priced into India, drawing some volume away from Europe and providing a floor for European prices, the market was still mired in oversupply, said analysts at Thomson Reuters Point Carbon.

“This is due to weak demand in Europe and relatively healthy Russian exports toward Europe, especially as Russian exports to Ukraine weaken year-on-year,” said the analysts in a weekly note on Monday.

On the technical side, prices would likely rise next week if the Cal 17 API 2 closed on Friday above USD 39.40/t, said Tom Høvik, head of Montel’s technical analysis services.

Prices & Spreads

*Montel assessments

Stocks
European port coal stock levels as of 22 February, obtained by Montel from the respective terminals (against previous week):
EMO (Rotterdam) – 1.6m tonnes (+0.1m tonnes)
OBA (Amsterdam) – 1.4m tonnes (-0.1m tonnes)
EBS (Rotterdam) – 0.45m tonnes (unchanged)
Ovet Vlissingen/Flushing – 0.472m tonnes (-0.014m tonnes), combined thermal and coking
Ovet Terneuzen –  0.207m tonnes (+0.024), comprising petcoke, anthracite and coke

Reporting by:
James Allen
james@montel.no
17:27, Monday, 22 February 2016