(Montel) Near-term paper and physical coal prices slid 5% over the past week as lower European coal-fired generation levels, abundant supply and low liquidity pressured the market, participants said on Thursday.
The front month API 2 contract dropped 4.8% week on week on Ice to a latest trade at USD 74/t, while the Cal 18 was a more modest 1% lower at USD 67.85/t.
On the physical market, the Global Coal rolling delivered ex-ship, Amsterdam, Rotterdam or Antwerp [Des ARA] index was last assessed at USD 78.86/t, down 5% week on week.
Oslo-based analyst Nena’s EU 7 coal burn index – which includes generation by Spain, Germany, UK, France, Finland, Denmark and Italy – fell 19% month on month in February, although it was still 12% higher than in the same month last year.
“EU coal consumption in March will depend heavily on wind power output in northwest and continental Europe and heating demand, with a good chance of ending up at similar or even higher level than in February,” said Nena analyst Diana Bacila.
“But supply from Colombia and Russia, and even the US, is strengthening – with the arbitrage for US coal currently open – which should pose some downside risk to API 2,” she said.
Shipbroker Clarksons Platou cited low liquidity, warmer weather and stronger renewable generation levels as bearish drivers.
“Falls in gas and power prices have [helped coal prices] overcome any lingering bullish sentiment tied to possible production cuts in China,” it added.
China focus
Nevertheless, the market was still awaiting fresh signals from China, regarding a decision on renewed curbs to production, for clearer price direction.
Major Chinese coal producers in February voiced their support for a reintroduction of last year’s 16% cut in the number of days per year mines can operate but any decision can only be made by the National Development and Reform Commission.
“I guess they will allow more flexibility for miners, which will reduce the probability for tightness to develop in the domestic market as it happened last year,” said Bacila, adding “if they implement the 276 days per year for six months [from 330 days at present], more upside risk arises for Q2 and Q3”.
Andy Sommer, senior analyst at Axpo Trading, said on Wednesday some “middle ground” was most likely, with larger, and more efficient, miners being allowed to continue at 330 days per year and smaller firms having their operations cut to 276 days per year.
“In the near term [Cal 18] coal could rise to USD 70/t but that’s it as I think the market has already priced in 50-60% of a possible output cut,” said a German power portfolio manager.
Reporting by:
Laurence Walker
laurence@montel.no
11:05, Thursday, 2 March 2017