(Montel) European front-year coal prices may jump 3-4% this month from current levels amid bullish technical signals and the prospect of German stockpile replenishment as river levels rise but weak Asian demand could limit gains.
The API 2 front-year contract traded last at USD 86.70/t, around 5% lower on the month.
But it was also up by 5% from mid-November’s seven-month low of USD 82.30/t.
Montel’s head of technical analysis, Tom Hovik, said the front-year API 2 contract would likely maintain its bullish momentum in early-to-mid December.
“It looks like we could see the market rising towards USD 90/t, potentially this week,” he said.
Praying for rain
“The main drivers for API 2 over December will be the Rhine levels, wind [availability] and gas prices,” said an analyst with a coal supplier, adding many importers were “praying” for a sustained rise in German river levels.
Montel reported earlier that a sharp increase in river levels this week would likely spur shipments of coal from European import terminals' swelling stockpiles to power generators in need of supply.
But the window of opportunity could be short-lived amid forecasts of drier weather from next week, market participants said.
With combined stocks at four key Amsterdam, Rotterdam and Antwerp (ARA) terminals last seen at multi-year highs of more than 7m tonnes, utility demand for further cargoes has been limited, thereby weighing on prices.
Indeed, the Global Coal Des ARA index was last assessed at USD 82.12/t, around 17% lower than at the end of October.
“Higher Rhine levels are slightly bullish for coal,” said Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo Nena Analysis.
Asian drivers
But the market could also face headwinds this month from the Asia-Pacific region.
“There is maybe not too much more upside left for coal,” said Nåvik, pointing in part to the influence of sluggish Chinese import demand on the broader seaborne market.
The country placed restrictions last month on the customs clearance of imported coal until the end of the year.
Although some buyers had returned to the market to purchase January-loading cargoes, Nåvik said strong domestic production might limit import demand.
“China ramped up production in September and October and this is combined with expectations of muted demand [due to forecasts of mild weather],” he said.
China produced an average of 10m tonnes/day in September-October, compared with an average of 9.6m tonnes/day in the preceding months this year and 8.1m tonnes/day in 2017, government data showed.
“China has high stocks at both ports and power stations, so is unlikely to need coal imports this month, so I think only an exceptionally cold period will really move the market,” said the analyst.