(Montel) European paper coal prices rose more than 5% over the past week to three-week highs, despite a sluggish physical market, amid lingering concerns about Australian supply disruptions, participants said on Friday.
The front-quarter API 2 contract last traded flat on the day at USD 87.90/t, while the front year was USD 0.37 higher at USD 83.50/t, on Ice Futures.
The contracts earlier reached their highest levels since 20 September, of USD 88.20/t and USD 83.80/t, respectively.
The gains were in part influenced by a still bullish Asia-Pacific futures market, where the Ice Newcastle front-year contract hit a fresh four-year high of USD 89/t in the previous session.
It was last seen somewhat lower, at USD 88.50/t.
Market participants said this was due in part to ongoing concerns about Australian supply, with ongoing industrial action at Glencore-owned thermal coal mines and workers at one of Australia’s largest coal haulage companies, Pacific National, set to begin an indefinite overtime ban from Saturday.
The market may also have taken some direction from latest US government La Nina forecasts, which show there is a 55-65% chance of the weather pattern developing this autumn and winter.
Weather forecasts showed the pattern was “edging closer to La Nina conditions”, the National Oceanic and Atmospheric Administration said in a report published late on Thursday.
“La Nina usually brings upside risk to coal prices [such as] stronger heating demand during winter combined with a higher risk of supply disruptions, particularly in the Pacific,” said Diana Bacila, senior analyst at Oslo-based Nena.
“On the demand side, it brings cooler winters in China, Japan, South Korea and the US, while on the supply side, above normal rainy seasons in Indonesia, Australia and Colombia,” she said.
Physical weakness
Yet, on the physical market, the Pacific Basin benchmark Newcastle index was 3.1% lower on the week at USD 94.72/t.
Likewise, in the Atlantic basin, the Global Coal Des ARA index slipped 4% on the week to a seven-week low of USD 87.73/t, amid a stark lack of trading activity.
“The coal burn in Europe remains subdued and a lack of fundamental demand has shifted values lower,” said a coal broker, in a note.
Indeed, no cargoes for delivery in northwest Europe have traded via broker Global Coal since the end of August.
September was the first deal-free month for the Des ARA market since Montel began collating the trade data in November 2010.
API 2 gains limited
Speaking at the Cemprospects conference in Rome, earlier this week, European Cement Association manager Frank Brannvoll said the API 2 price rally was unlikely to last.
“The rubber band has been stretched, and now it’s overstretched,” he said, citing technical indicators, adding “this market is begging for a correction”.
And from a fundamental viewpoint, the market was “running out of steam”, he said.
This in part reflected the prospect of China’s National Development and Reform Commission taking more aggressive steps to reduce domestic prices to below CNY 600/t (USD 91/t), particularly after they recently exceeded CNY 700/t.
At the same time, industrial action in Australia was likely to have been resolved by next year, and no major South African mine or transportation strikes were expected, he said.
Reporting by:
Laurence Walker
laurence@montel.no
12:17, Friday, 13 October 2017