(Montel) A rally in European coal prices that has taken the front-year contract to nine-month highs shows signs of petering out amid an expected decline in European coal burn.
The front-quarter API 2 contract rose by 1.5% over the past week to a latest trade at USD 80.30/t, while the front-year gained 0.6% to USD 73.75/t, on Ice Futures.
On Monday the front-year contract surged to as much as USD 75.90/t, the highest level since 11 November.
On the physical market, the Global Coal rolling delivered ex-ship, Amsterdam, Rotterdam or Antwerp (Des ARA) index was last assessed at USD 83.46/t, up 1.2% from last Wednesday.
The rise in prices was primarily due to a heatwave in China that has boosted demand for imports and tight supply in Australia and Indonesia, said players.
The Global Coal Newcastle index – an important benchmark for the Asia-Pacific coal market – was last assessed at USD 96.92/t, the highest level since 18 November.
“China’s coal balance is tight due to a myriad of factors including disrupted coal output in the North, strong consumption in the South, low hydropower, safety checks at mines and import ban at smaller ports,” said Diana Bacila, a coal analyst at Oslo based Nena.
“Supply in the Pacific is also tight amid strikes in Australia delaying exports, rains in Indonesia and limited growth in South Africa.”
Rally to end
However, there were signs the recent rally could be ending, she added.
“Downside risk to coal prices increases as we enter into the last summer month and temperatures cool down in the Northern Hemisphere, but some upside risks sustain in the Pacific.”
Cooler temperatures and improved renewables look set to depress coal burn in Europe next week, with gas-fired power plants in Germany becoming relatively cheaper to run, Bacila added.
“Temperatures and precipitation in Europe and China, and supply developments in the Pacific will set the tone for coal prices going forward.”
From a technical viewpoint, the Cal 18 API 2 contract could creep higher a touch before trading sideways, said Tom Høvik, head of Montel’s technical analysis services.
“Ideally we should see the market up and into new highs again [before buyers consider further purchases],” Høvik said.
“The important trend structure point to keep in mind is now USD 72.70/t. Any trading below will potentially call for turning this uptrend south again.”
Reporting by:
James Allen
james@montel.no
17:09, Thursday, 3 August 2017