(Montel) European coal prices may rise in November amid a dearth of higher quality material and the prospect of a seasonal upturn in demand but a prevailing preference for cheap, lower-grade coal could cap gains.
The API 2 front-quarter contract traded last down by more than 4% on the month at USD 96.90/t, while the front year was 3% lower at 95.20/t, on Ice Futures.
On the physical market, the Global Coal Des ARA (Amsterdam, Rotterdam or Antwerp) index was last assessed at USD 98.75/t, nearly 2% lower than at the end of September.
“The whole energy complex has had a downturn in sentiment [in October], however we are on the verge of the winter, so who is willing to short the market?” said a coal analyst with a coal producer.
It would require colder than normal weather to drive prices much higher, however, he added.
Chinese demand could also play a role in underpinning global seaborne prices, should buyers – many of whom had already reached their 2018 import quotas – begin purchasing cargoes for January delivery, he said.
“There is a tightness in the physical market – at least for high-quality coal,” said Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo Nena Analysis, adding there was therefore some “upside potential” for the prompter contracts.
“But a lot of what is happening right now [in Europe] is still driven by China,” he said, adding any slowdown in the Chinese economy, amid the ongoing trade spat with the US, could have bearish implications for global coal prices.
Technical view
From a technical viewpoint, Montel’s head of analysis Tom Hovik said the front-year API 2 contract faced some initial headwinds in November, with the contract potentially declining to as low as USD 88/t.
But once this support level was reached, it could rebound up towards USD 100/t again, he added.
“There is a lack of [higher-quality] product in general,” said a coal analyst with a European energy trading firm, adding, however, European utilities could tap into the relative glut in lower grade coal, with a calorific value of 4,200-5,500 kcal/kg, if their plants could run such specifications.
“Pacific demand is a bit weak, which is squeezing [lower-quality] volume into Europe,” she said.
Supply overhang
Montel reported on Tuesday that a crackdown on pollution in Asia had resulted in an overhang of cheap, poorer-quality coal, which was being snapped up by “more flexible” European generators.
European buyers have also been taking advantage of the low-cost coal to create blends to meet specifications akin to pricier Colombian supplies.
“They are buying [lower quality] coal and blending it with US high-sulphur material, which allows them to create a 6,000 kcal/kg material,” said an analyst with a transatlantic coal supplier.
This is the calorific value stipulated in broker Global Coal’s Des ARA and Newcastle quality specifications.
“The preference for high-sulphur material makes it tricky to place Colombian into Europe,” he said, adding there was little incentive for utilities to move away from this blend in the near term.
“Barring a US shortage, I don’t see Colombian coal making many gains back into Europe.”