(Montel) Atlantic basin coal prices face further pressure in September, with stocks still high and demand muted, yet potential output reductions may limit losses.
The API 2 front-quarter contract was seen last at USD 57.15/t, down 6% from the last trading day of July, while the front year was 5% lower at USD 64.25/t, on Ice Futures.
The contracts hit around two-month lows of USD 54.90/t and USD 62.55/t, respectively, in late August.
The Global Coal Des ARA index – a benchmark for Atlantic basin physical trading – has averaged around USD 53.60/t in August, down from USD 57.90/t in the previous month.
An analyst with a European coal supplier said there were few supportive factors on the horizon, noting “with TTF [gas] and power prices both falling, and neither showing any indication of reversing course, I see almost all of the pressure on API 2 being to the downside”.
No major increase?
“It would take a cold winter, a sudden and dramatic rapprochement between world powers or some other miracle to see a major increase in prices until at least 2020,” he noted.
Yet other participants pointed to some possible signs of near-term support.
“There is a potential upside for coal prices in September, due to increased maintenance at Norwegian [gas] fields and gradually falling temperatures,” said a coal analyst, with a London-based consultancy.
“Less gas and slightly colder weather would mean more coal is needed in the system than in the first two months of the [third] quarter,” he said, noting this was assuming temperatures returned to seasonal norms.
According to forecaster SHMI, temperatures across Europe would be at close to usual for time of the year for much of September.
“That said, stock levels seem to be comfortably high at the moment and thus any increase will be capped by healthy supplies in the region,” the analyst said.
Inventories at four key ARA terminals were assessed this week up 1.5m tonnes on the year at 6.55m tonnes.
Yet sluggish physical spot activity had resulted in some slowdown in vessel arrivals, meaning the stock total was at its lowest since mid-March.
Indeed, Des ARA trading activity had ground to a virtual halt.
“There’ve been [no trades] so far in August,” said a London-based coal broker, noting participants had been on holiday, or were otherwise unwilling to make spot purchases in an already oversupplied market.
Limited downside
Nevertheless, there was limited downside, as miners began to feel the pinch from shrinking profit margins, participants said.
Hans Gunnar Nåvik, senior analyst with Oslo-based StormGeo, said with prices close to USD 50/t, supply would likely contract and “balance demand”.
“[But] we have to see a stronger contraction in supply to… avoid a further decline in prices,” he said.
“Over time, we believe supply response will be adequate, however, so far we do not find evidence for it.”
From a technical viewpoint, the Cal 20 API 2 contract would likely trade flat or slightly softer over the course of the month, said Tom Høvik, head of technical analysis at Montel.
“No strong direction is spotted at the moment ahead of September, for the next four or five weeks,” he said, adding USD 62/t and USD 71.50/t were “important” support and resistance levels.