(Montel) A crackdown on pollution in Asia has resulted in an overhang of cheap, lower-quality coal, which is finding a home in Europe, where “more flexible” generators can take advantage of the glut, analysts said on Tuesday.
“More and more off-spec coal is coming into Europe,” said a European coal trader, regarding lower-cost material that does not meet broker Global Coal’s Des ARA or Newcastle specifications for calorific value (CV) – of 6,000 kcal/kg – or for sulphur and ash content.
European buyers were taking incremental volumes of South African, Australian and Indonesian coal, he said.
“The main driver behind this [new trend] is the fight against pollution in China and South Korea,” Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo Nena Analysis, told Montel.
Restrictions on “dirtier” coal meant lower CV and higher ash material was less attractive for two of the world’s largest importers, he added.
In South Korea – and to a large extent, China – generators face restrictions on the quality of coal burnt, as opposed to their European counterparts, who instead face restrictions on plant emissions.
Therefore, as many European coal-fired plants are fitted with desulphurisation and ash treatment technology, the quality of coal consumed is somewhat irrelevant.
“Since there is high production of [off-spec coal] in Australia, Indonesia and South Africa, sellers have to fight for new markets and the only way to do this is to lower prices,” Nåvik said, adding there were therefore good opportunities for buyers with flexible coal-fired generation capacity.
“European generators are some of the most flexible in the world, due to their highly sophisticated plants,” he said.
A coal analyst with a European trading firm also told Montel utilities would “naturally go for the cheaper coal, if technologically implementable”.
“But I cannot predict how long this will be sustained, or whether it will become a [long-term] trend,” she added.
Blending options
Aside from simply running lower grade coal, European buyers were also attracted by the “blending options”, said a coal analyst with a European energy firm, adding lower cost US high-sulphur coal and Russian material, for instance, could be blended to “mimic” popular Colombian coal specifications.
“Off-spec coal is widely preferred in Europe now – there is very little [higher grade] coal being offered,” said an energy strategist with a large European trading house, adding however discounts to the higher grade alternatives varied quite widely.
Market participants have cited discounts of USD 30-50/t to higher quality material in recent weeks.
But with the Global Coal Newcastle (Australia) index assessed last at USD 106.29/t, even a discount of USD 30/t would suggest a cost of around USD 76/t for marginally lower quality coal.
Taking into account an estimated shipping cost of USD 16/t – from Newcastle to northwest Europe – and the poorer specifications, the price is still clearly more competitive than the latest Global Coal Des ARA index price of USD 98.75/t.