European coal market struggles with surge of off-spec flows
The European thermal coal market was struggling with close to record high stockpiles at the key Amsterdam-Rotterdam-Antwerp hub, as an increased volume of off-spec coals flowed into the region, sources said.
European utilities have been blending off-spec coals for many years as it is typically a more economical way of achieving the most favorable heat, ash, sulfur and other values. However, the declining availability of high quality coal coupled with the increased flows of off-spec coals could be tipping this balance into unsustainable territory, sources said.
A European utility buyer questioned how much more off-spec coals could fit into Europe. The source said a lot of high ash coals, notably from South Africa and Australia, were sitting in stockpiles in Europe.
The source said blending these coals would require additional tons of high CV, high sulfur coals from the US to achieve favorable heating ash and sulfur values.
A European trader said discounts for off-spec coals were growing and less 6,000 kcal/kg NAR coals were being purchased on the continent.
In terms of off-spec coals, the source said US, Russian, Colombian and South African coals were all pricing into Northwest Europe, essentially flooding the market.
DISCOUNTS FOR SOUTH AFRICAN OFF-SPEC COALS WIDEN
As much as 2 million mt of South African coal was heard to be traveling to Europe within the last month.
“I could believe that,” a South African producer-trader said. “The demand from India and Asia as a whole is not there at the moment so we have to send to Europe.”
“[It’s not 6,000 kcal/kg NAR] grade, it’s all lower spec,” the source said.
Traders typically peg off-spec South African coals at a discount to the financial contract, which is basis 6,000 kcal/kg NAR.
Discounts for the lower grades of South African coal have widened considerably in recent months.
The discount from the financial 6,000 kcal/kg NAR price to the physical 4,800 kcal/kg NAR price was heard at $18/mt Wednesday, from as narrow as $5.95/mt in April, while the discount to physical 4,800 kcal/kg NAR was heard at $30/mt Wednesday from $13.50/mt in April.
“Discounts are as wide as they have been for the last five years,” the source in South Africa said. “But when they were previously this wide the [financial 6,000 kcal/kg NAR market] was a lot lower.”
Sources were skeptical over the sustainability of this trade flow in the long-run as they were expecting a return of Asian demand — particularly from India — to absorb most of these off-spec tons.
“There’s hardly any demand from India, just one or two inquiries, for all I know it could be just one buyer looking,” the producer-trader said.
The exact return of the Asian demand, however, was unknown. That, said a European analyst, is the “million dollar question.”