(Montel) A slight pick-up in European demand and surging coking prices helped lift thermal coal prices this week, though a loosening of Chinese production cuts could start to pressure contracts, said market participants on Thursday.
The front-year API 2 contract rose 2.6% week on week on Ice to a latest trade at USD 58.10/t, having risen from Monday’s three-week low of USD 55.50/t.
On the physical market, prices were less well supported, with the Global Coal Des ARA index – an Atlantic benchmark – nudging lower from USD 60.89/t last Thursday to a latest assessment of USD 59.24/t.
Increased coal consumption in Europe over the past week was supported API 2 contracts, said Nenaanalyst Diana Bacila.
“We believe restocking for winter will ask for more coal from the international market in the short-run,” she told Montel.
A derailment on the Newlands Coal Rail System, which links several met coal mines in Queensland to the Abbot Point Coal Terminal in Australia, was also supporting thermal contracts, a London-based analyst told Montel.
Surging coking coal prices were – unusually – influencing the thermal coal market, a Singapore-based coal broker told Montel earlier this week.
Coking coal prices have more than doubled since the multi-year lows seen in February, to a record USD 195.70/t.
China proposal
However, China’s new proposal to allow some domestic coal companies to increase coal production under certain circumstances could start to pressure prices, she added.
The Chinese government in April reduced the number of days that mines can operate per year by 16% to 276, triggering a sharp rise in imports.
“Some miners will be granted permission to gradually increase output when the market is tight or prices are high, and to reduce output when the market is weak,” Bacila told Montel.
“We see this will help stabilise prices in China and prevent against spikes driven by high demand, as we have seen this summer due to increased cooling demand and low hydropower generation.”
However, the new policy “doesn’t seem to be enough to set coal prices on a falling track”, a Finnish trader told Montel, noting the API 2 Cal-17 had remained largely within a USD 55-60/t range since July.
But a further bearish driver remained the risk of low river levels in Germany, which induces surcharges for barge shipments and disrupts coal volumes received by power plants, said Bacila.
Water levels at the Germany’s main indication point of Kaub, on the Rhine, and one of the widest and shallowest sections of the river, were last measured at 146 centimetres, and expected to fall to 124cm by the weekend, government data showed.
Barge operators can levy an incremental surcharge when levels drop below 150cm.
Reporting by:
James Allen
james@montel.no
19:50, Thursday, 15 September 2016