(Montel) European coal prices recovered slightly this week amid concerns about a possible strike at Colombian miner Cerrejon and relatively stable producer currencies and oil prices.
The benchmark calendar 2017 futures contract rose 4% from a week earlier to USD 38.70/t at 15:46 CET on Ice, while March last traded at USD 45.50/t at one broker.
The cal-2017 contract peaked at USD 39.55/t this week, its highest since Jan 29, as reports indicated that Colombian mineworkers and employers had failed to reach agreement on wage increases.
The parties have about one more week of discussions before unions vote on the current pay offer of 6.8%. However, support for industrial action appears to be waning among miners as the deadline approaches.
Falling freight rates have opened up an arbitrage for Colombian coal to India, according to Diana Bacila, an analyst at Nena in Oslo. As much as 1.2m tonnes of coal has been sold to India in recent weeks, mainly by producer Drummond, she said.
“If the strike doesn’t take place, front-month prices could fall by as much as USD 2/t overnight,” Bacila told Montel. “But if it does happen, Drummond has sold so much coal to India that there will be less available to fill Atlantic Basin demand.”
The arbitrage has been helped by tighter supplies in Richards Bay, the more traditional supplier to India. Prices for front-month API 4 coal in Richards Bay have been stable in the USD 52/t range for the past week, an increase of around USD 1/t from the previous week, according to globalCOAL’s Richards Bay index.
“There are only about 2 million tonnes of inventory at Richards Bay, which has helped API 4 prices to hold higher,” Bacila said. “Lower freight allowed Colombian coal to price into India.”
Demand remains thin
Yet traders said overall demand for spot coal was thin.
This week’s price increase “is not about fundamentals, which are unchanged and which won’t change over the next few months,” an eastern European coal trader told Montel. “Demand is not good; usually we get a few enquiries in February and March for spot product, but not this year.”
Stable to firmer prices in Europe are also bolstering Russian producer prices. Russian material has been steadily dropping in price in the past months as falling crude oil and a weakening ruble have cut costs at home and allowed more aggressive pricing.
But with crude oil and the ruble having stabilised in recent weeks, the need to cut prices to remain competitive has evaporated. “Russia is not pushing to move more coal into the market at the moment,” an eastern European trader told Montel. “They’re comfortable with the current price.”
Spot supply at the main South African port is tighter than normal, according to a European trader. “South African producers have contracted on long-term, which has surprised people, the trader said. “I assume the current availabilities are short as a result.”
Reporting by:
Alessandro Vitelli
newsdesk@montel.no
16:22, Thursday, 25 February 2016