(Montel) European coal prices hit fresh year-to-date highs on Thursday as bullish oil prices and a strong rouble combined with a buoyant South Africa export market, despite the API 2 market being otherwise well-supplied.
The Q2 API 2 contract was up by 2.7%, week on week, to USD 46.05/t, while the Cal 17 contract gained by 2.1% to USD 41.80/t, according to Ice data.
The contracts hit fresh 2016 highs, respectively, of USD 46.25/t and USD 42/t earlier in the session.
“Despite the strike in Colombia not materialising, API 2 has received support over the past days due to higher oil prices and a strong appreciation of the Rouble against the USD,” said Diana Bacila, an analyst at Oslo-based Nena.
“Today the Rouble has appreciated to below USD 69, which, combined with oil prices at USD 41/bbl, is lifting the cost of Russian coal miners, and therefore the price at which they will be able to offer their coal into Europe.”
Russian coal producers will deliver to Europe at coal prices of above USD 45/t in the short run, “therefore limiting API2's downside potential”, she added.
Brent crude’s front-month rose USD 1.15 to USD 41.48/bbl, after earlier reaching the year's peak of USD 41.60/bbl.
Inflated API 4
Inflated South African API 4 coal prices are also proving supportive, players said.
The front-quarter API 4 contract closed on Ice, in the previous session, at USD 50.77/t – nearly USD 5 above the equivalent API 2 contract.
“What’s happening at RBCT [Richards Bay Coal Terminal] is actually harmful for South African exporters because with the price so high, compared with the other hubs, we cannot sell to the Atlantic market and even our favourite client, India, is buying other coals,” said Xavier Prévost, senior analyst with Pretoria-based XMP Consulting.
As for demand, coal consumption has increased over the past week in Spain, Italy, France and the Nordics, said Bacila.
“Less wind power generation in Germany is also keeping coal consumption at high level. However, overall thermal coal demand in Germany may fall in 2016 if more utilities decide to place hard coal plants on longer maintenance.”
Engie's decision to stop its 731 MW hard coal plant Wilhelmshaven for seven-months from March 25may reduce German coal burn by 0.60-0.80m tonnes this year, she noted.
Still over-supplied
However, the market was still generally over-supplied, said Serene Lim, an analyst at Standard Chartered Bank.
“The lack of a concerted and substantial supply cut continue to weigh on prices,” said Lim.
“We expect producers' operating margins to remain under pressure. However, there are still room for the Australian miners to improve profitability. We believe Indonesian miners will be worst hit. Demand growth remains lacklustre, with slower organic growth in the Pacific region.”
Reporting by:
James Allen
james@montel.no
20:53, Thursday, 17 March 2016