COAL OUTLOOK – Seasonal restocking to support prices

(Montel) Tight global supply, coupled with ongoing pre-winter restocking activity, is likely to support prices this week, although there is some risk of a correction, market participants said on Monday.

The front-quarter API 2 contract last traded up USD 1.05 at USD 79/t, still somewhat lower than Wednesday’s two-year high of USD 80.65/t, while the Cal 17 rose USD 0.90 to USD 70.85/t, on Ice Futures.

On the physical market, the Global Coal Des ARA index was last assessed at USD 83.21/t, up 4% on the week, after hitting a multi-year high of USD 84.18/t last Monday.

“Newcastle Q1 is up almost USD 3, which is huge,” said a Nordic coal trader. “I can only imagine this will continue, so it’s very likely we’ll see more gains on the API 2 as well.”

The front-quarter Newcastle (Australia) contract was last seen at USD 93.50/t, up USD 2.83 against Friday’s close.

“We’re not going to see this tightness easing before the end of the first quarter of next year,” said Diana Bacila, senior analyst at Oslo-based Nena, adding even if Chinese production rises by 1m tonnes a day, if would not be sufficient to offset demand.

“Stocks [globally] in the first half were pretty low, so there is a lot of restocking now, even in Europe,” she said, adding European prices are unlikely to fall below USD 65/t until the second quarter of next year.

From a technical viewpoint, the Cal 17 contract may come under some marginal pressure this week, although the likelihood of a persisting upward trend remains, said Tom Høvik, head of Montel’s technical analysis services.

“Last week closed with a small bearish warning ahead of this week,” he said, adding however, if the contract closes above USD 71/t, more upside can be expected, potentially to above last week’s high of USD 72.50/t.

Prices & Spreads

*Montel assessments

Stocks
European port coal stock levels as of 31 October, obtained by Montel from the respective terminals (against previous week):
EMO (Rotterdam) – 2.3m tonnes (-0.1m tonnes)
OBA (Amsterdam) – 1.6m tonnes (0.14m tonnes)
EBS (Rotterdam) – 0.25m tonnes (-0.05m tonnes)
Ovet Vlissingen/Flushing – 0.37m tonnes (unchanged), combined thermal and coking
Ovet Terneuzen – 0.17m tonnes (0.01m tonnes), comprising petcoke, anthracite and coke

Events
There is a public holiday on Tuesday in many European countries, including parts of Germany, Austria, France, Italy and Spain, and on Friday in Russia.

Reporting by:
Laurence Walker
laurence@montel.no
11:41, Monday, 31 October 2016