COAL OUTLOOK – Market faces temporary losses

(Montel) European coal prices may weaken in the coming days amid softer generation demand, but a preference for pre-winter restocking requirements will limit losses, participants said on Monday.

The API 2 front-quarter contract traded last down USD 0.65 at USD 101.20/t, while the front year was USD 0.65 lower at USD 99/t, on Ice Futures. 

The latter contract reached its highest level since early 2013 last week, on a rolling basis, of USD 100.45/t. 

“Demand for coal is likely to soften in the near term in Europe [as] the latest weather forecasts suggest a continued warmth, with more wind and rain ahead,” said a commodities analyst with a UK-based trading firm. 

“But coal has been fairly resilient compared with the rest of the energy complex,” he added. 

Forecaster SMHI said temperatures across Europe would average 1-3C above seasonal norms this week, but that the weather would be “unsettled and cooler” for the rest of October. 

Waterway issues 
“Europe is set for higher demand, simply because of the gas tightness, but the problem has been extreme logistics issues,” said Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo Nena Analysis. 

Low river levels – which have hampered barge movements and resulted in higher inland shipping costs in recent months – have limited generator demand for imported material, he said. 

“When the logistics situation normalises, we should see more coal demand,” he said, noting a switch from barge to rail was “possible, but extremely costly”. 

The main German river network indication point at Kaub, on the Rhine, is forecast to fall by around 25% this week, to just over 50cm, according to official data. 

A source at one large dry bulk terminal said lower water levels were “still an issue”, although seaborne deliveries to the port, and reloadings onto barges – for inland shipment – were “busy”. 

Tom Hovik, head of technical analysis at Montel said the API 2 Cal 19 contract could still see some further gains this week. 

“It seems likely we shall see a higher high this week, at above last week’s high of USD 100.45/t,” he said. 

Prices & Spreads

Stocks 
European port coal stock levels as of 8 October, obtained from the respective terminals (against previous week): 
EMO (Rotterdam) – 3.5m tonnes (unchanged) 
OBA (Amsterdam) – To be added later 
EBS (Rotterdam) – 0.1m tonnes (unchanged) 
Ovet Vlissingen/Flushing – 0.485m tonnes (0.115m tonnes) 
Ovet Terneuzen – 0.165m tonnes (-0.015m tonnes)