Coal oversupply to limit price gains
European coal prices posted tentative gains early on Monday, although market participants said lacklustre demand and swelling stocks would likely keep pressure on the market this week.
The API 2 front-year contract traded last up USD 0.35 at USD 66.50/t, while front quarter had yet to trade on Ice Futures at the time of writing.
The Cal 20 gains coincided with rising gas prices, with the Dutch TTF front-month contract trading EUR 0.14 higher at EUR 11.66/MWh on Ice Endex.
Yet physical coal trading activity remained “rather quiet” amid “very thin demand”, said a London-based broker.
Just one cargo for delivery in northwest Europe has traded via broker Global Coal so far this month – a July-loading cargo, which changed hands at USD 51/t nearly a week ago.
“The only activity has been people reloading tonnes out from ARA [Amsterdam, Rotterdam or Antwerp] to elsewhere,” he said, citing regional oversupply.
Swelling ARA stocks – which were still around 50% higher than at the same time last year – have limited buyer appetite, particularly amid weak coal-burn levels across Europe.
“The coal burn is not that high, with cheaper gas pushing coal down the merit order,” the broker said, adding “a high CO2 price is not helping”.
The July clean dark spread – the profit margin for burning coal to producer power, including the cost of carbon – was last seen at negative levels of EUR -3.65/MWh, for a German power plant of 37% efficiency, according to Montel data.
But the gas equivalent – or the clean spark spread – was at EUR 10.50/MWh, for a plant of 59% efficiency.
“Coal remains in the doldrums [and] a recovery is looking unlikely in the near-term,” Alfa Energy analysts said in a monthly report.
“With such price declines this year and the general attitude towards coal-fired generation, it will need an Opec-style producer cut to make demand outstrip supply and perhaps support a slight increase in prices in Asia and Europe.”