(Montel) European front-year coal prices are likely to hold within a USD 55-60/t range this month, although overall market sentiment will remain weak because of an oversupply and limited demand, analysts and traders said.
“We could see prices at similar levels for the coming week or two, but in the longer-term the outlook is still bearish,” said Diana Bacila, coal analyst with Oslo-based Nena, adding the sluggish demand scenario was being somewhat offset by short-term Russian and Colombian supply factors.
“The ruble appreciation over the past month could help limit any downside,” she said, referring to the currency’s 30% rise against the dollar since early February, when it had slumped to 70.
With the ruble now nearing 50 against the greenback, Russian producers may hold back supply because they are earning less income for their exports that are priced in dollars.
In Colombia, there remains uncertainty about the country’s long-term available supply after its main coal carrier, Fenoco, began a night-time halt to operations in mid-February.
Colombia’s second-largest coal producer, Drummond, said in mid-April some 27,000t/day was being affected, but market estimates vary – with some as high as 33,000t/day.
Guillaume Perret, director of consultancy Perret Associates, also said prices were likely to remain little changed the coming weeks, with the Cal 16 API 2 contract moving within a USD 55-60/t range.
The Cal 16 contract ended April at USD 58.48/t, up 1.7% from 31 March, while broker Global Coal last assessed its physical Des ARA coal index at USD 61.09/t, up around 2%.
Abundant supply
Still, there appears to be no shortage of coal, with abundant alternative origin material on offer.
“Atlantic coal trade is pretty slow. There have been some cargoes coming up from South Africa, which has offset the decline in [uncompetitive] US deliveries,” said Bjorn Bodding, analyst with Oslo-based shipbrokers RS Platou. He expects a similar trend in May.
After introducing a 6% tax on thermal coal imports last October, China brought in more stringent rules in January on the quality of imported coal, resulting in a virtual halt in South African shipments to the country. As a result, South Africa has exported more coal to Europe.
Asia view
On the demand front, data from Asia has been bearish so far this year. Chinese imports fell 53% in the first two months of the year, compared with January-February 2014, according to customs data.
“I think any price rise was going to be short-lived, as the fundamentals for the Chinese market [of weakening demand] have not changed – in fact they are getting worse due to fresh domestic price cuts,” said Christian Marston, head of physical coal trading at Singapore-based INTL Asia.
India has been feverishly restocking in recent months, offering some price support. But as stocks reach record levels, it is likely to exit the market in the coming weeks.
Coal stocks at 100 power plants monitored by India’s Central Electricity Authority were last seen at around 30m tonnes, the highest level since Montel began collating the data in October 2012, having more than doubled since the start of the year.
“India has very high stocks, so even if the monsoon season is not strong, it will still limit incremental demand,” said Bacila.
During the June-September monsoon season, Indian port and mine operations are regularly disrupted due to the adverse weather conditions.
Reporting by:
Laurence Walker
laurence@montel.no
10:26, Friday, 1 May 2015