(Montel) European coal prices could find support this week from increased demand from the power sector, potentially pushing API 2 contracts further above recent record lows, analysts and traders said on Monday.
The Cal 17 API 2 was last seen pegged at around USD 37.65/t, just up from late January’s record lows of USD 37.25/t, according to broker and exchange Ice data.
On the physical market, Global Coal’s Des ARA index was last assessed at USD 46.30/t, up 2.9% week on week.
“European coal prices have received some support lately as utilities were building up inventories, after burning higher coal volumes in the second half of January on increased heating demand,” Diana Bacila, a Norway-based analyst at Nena, told Montel.
“Power plants need to secure coal supply as the risk of cold spells remains in place for the rest of this winter. Improved Rhine levels have also helped, as it allowed barges to deliver more coal from the ports to the continent, therefore requiring more imported volumes.”
Ongoing salary negotiations likely lasting until the end of February in Colombia mean there is also a risk of a strike, potentially curbing exports and again potentially lifting the API 2, said Bacila.
“In case the strike begins, this upside may be somewhat limited, as demand seasonally declines in March, while other Colombian and also Russian miners will be able to increase shipments and partly replace the volumes,” she said.
“However, in case Europe will need volumes from South Africa and the US to balance demand, we see API 2 prices likely clearing above USD 50/t.”
Fed statement
The coal market is also looking to the US Federal Reserve interest rate statement on Wednesday for direction, said analysts at Thomson Reuters Point Carbon.
“A rate decrease, undoing the December increase, could support coal prices through a weaker US dollar. However, it would also confirm fears that global economic conditions remain weak, ultimately reinforcing weak demand-side fundamentals for coal,” the analysts added in a note.
The coal market remained “significantly oversupplied” with sliding currencies in producer countries protecting output volumes, they added.
On the technical side, the Cal 17 API 2 contract may see weakness this week, said Tom Høvik, head of Montel’s technical analysis services.
“But the market must break below the USD 37.25/t level to strongly call for further downside this week,” said Høvik.
“If this support level holds over the next few days a move up in the USD 38.50-39.35/t area should be the scenario until the end of this week. An eventual break below USD 37.25/t opens technically for USD 35.40/t thereafter.”
Prices & Spreads
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Coal prices
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Latest deal
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Previous close
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Previous week’s close
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API 2 Q2 2016
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USD 41.80/t
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USD 41.95/t
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USD 42.98/t
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API 2 Cal 17
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USD 37.65/t
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USD 37.88/t
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USD 39.35/t
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Global Coal DES ARA Index
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USD 46.30/t
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USD 44.99/t
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Spreads & BDI
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Latest assessment
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Previous week
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German clean dark spread (Cal-17)*
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EUR 0.90/MWh
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EUR 0.93/MWh
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German clean spark spread (Cal-17)*
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EUR –9.54/MWh
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EUR -10.25/MWh
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Baltic Dry Index (BDI)
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293 points
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317 points
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*Montel assessments
Stocks
European port coal stock levels as of 8 February, obtained by Montel from the respective terminals (against previous week):
EMO (Rotterdam) – 1.6m tonnes (-0.1m tonnes)
OBA (Amsterdam) – 1.55m tonnes (-0.01m tonnes)
EBS (Rotterdam) – 0.5m tonnes (unchanged)
Ovet Vlissingen/Flushing – 0.42m tonnes (-0.079m tonnes), combined thermal and coking
Ovet Terneuzen – 0.2m tonnes (-0.001), comprising petcoke, anthracite and coke