(Montel) Demand from Asia and a weaker US dollar are likely to further lift European coal prices above recent multi-month highs, market participants said on Thursday.
The Q4 API 2 contract hit an intraday peak of USD 62.25/t – the highest level since 2 March last year – while the Cal 17 topped at USD 60.40/t, a one year high. The contracts were last seen at USD 61.30/t and USD 59.50/t, up USD 0.43 and USD 0.22 on the day, respectively.
The contracts were also 2.4% and 1.7% higher, respectively, on the week.
On the physical market, the Global Coal Des ARA index was last assessed at USD 57.96/t, up 1.9% week on week.
Demand from Asia and a depreciation in the US dollar against coal producers’ currencies, particularly the Russian rouble, explained the recent market bullishness, Nena analyst Diana Bacila told Montel.
The Russian rouble ruble has strengthened by around 22% against the US dollar since its 21 January low of 82, with the value last pegged at around 64.
“Far East demand, including China, Japan and South Korea, remains the major driver to coal prices due to the cooling season and the latest tightness in Australian and Indonesian coal supply,” said Bacila.
“More Colombian and Russian coal was shipped to the East as replacement for Pacific coal volumes, reducing coal availability in the Atlantic.”
La Niña
Chinese domestic coal prices have also recently increased amid government regulations aimed at restricting coal production, tightening the Chinese coal balance and leaving buyers having to increase imports, she noted.
“Moreover, even though current heavy rains in China are good for hydropower generation, coal inventories at ports are still low and coal burn is seasonally ramping up, thus imports remain the silver lining.”
The prospect of a La Niña impacting Australian output was an additional bullish factor, said a commodities analyst with a London trading house.
There is around a 50% likelihood of the La Niña weather pattern making a reappearance later this year, according to Australia’s Bureau of Meteorology. This could disrupt Australian and Indonesian output through widespread flooding, as happened in 2010-2011.
In Europe, fundamentals remain weak though demand was likely to improve over the short trem, said Bacila.
“Renewables [ensure] very volatile coal burn in Germany, [while] Spain’s coal burn is seasonally rising, but year-to-date coal consumption in Europe is 30% lower than last year,” she said.
“But some European utilities could be restocking nowadays and less coal available in the Atlantic combined with a weakening USD is positive for the API 2.”
Reporting by:
James Allen
james@montel.no
22:50, Thursday, 14 July 2016