(Montel) European coal prices face further losses this month, as declining demand, more favourable gas-fired generation margins and strong supply keep pressure on the market.
The API 2 front-quarter contract traded last at USD 66.50/t, around 13% lower on the month, while the front year was 11% lower at USD 71.75/t, on Ice Futures.
The latter contract earlier reached a 21-month low of USD 71.45/t.
“The outlook for the coal market is looking bleaker,” said Wayne Bryan, senior analyst at Alfa Energy.
The analyst pointed in particular to the bearish impact of strong renewables levels – especially in Germany – while milder weather further stunted demand.
“[Also] cheap gas prices have encouraged fuel switching, with the dark spread at less than a euro,” he said.
Cheaper gas
The profit margin for burning coal to produce power – or the clean dark spread – was last seen last at around EUR 0.80/MWh, for a German power plant of 37% efficiency selling power for 2020, according to Montel data.
The equivalent clean spark spread – which indicates gas-fired plant profitability – was at EUR 6.50/MWh, for a plant of 59% efficiency.
“We may see some technical resistance at USD 70/t for the API Cal 20,” Bryan said, also noting that the prospect of temperatures slipping below seasonal norms this month “may see bit of demand”.
“But the overriding sentiment is bearish,” he added.
Temperatures across Europe this week could fall to as low as 5C below usual for the time of year but will rise from next week onwards to around seasonal norms by the middle of the month, according to forecaster SMHI.
An analyst with a coal trading firm said weak demand and an abundance of competing gas would continue to weigh on prices this month.
“But I would be surprised if we see prices [as low as] USD 55/t,” he said.
“The only short-term respite we could see is a very warm summer in Asia [thereby driving cooling-system demand] but even then, gas will take most of the demand there.”
Physical weakness
In physical trading, sluggish demand and strong supply persisted, with the market largely taking the lead from the related futures market.
Stock levels at Amsterdam, Rotterdam and Antwerp (ARA) remained high, with inventories at northwest Europe’s largest coal import hub, Rotterdam’s EMO, rising to 4.1m tonnes this week – the highest level since Montel began collating the data in 2012.
The Global Coal Des ARA index – a price indicator for nearby physical prices – was assessed on Friday at USD 63.68/t, down 9% on the month and the lowest level since September 2016.
“The Atlantic physical market saw off a lacklustre few days in moribund fashion, with offers tracking the paper lower and bids remaining elusive,” said physical coal broker, in a note, adding European demand was “negligible”.
Yet Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo, said the Des ARA market would have “limited downside” from USD 60/t, due to supply constraints.
Reporting by:
Laurence Walker
laurence@montelnews.com
11:34, Monday, 1 April 2019