Strong supply, weak gas drives coal to 2-month lows

Lacklustre demand and abundant supply will continue to weigh on European coal prices this week, with prices dipping to two-month lows in early Tuesday trading.

The front-quarter API 2 contract traded last down USD 1 on Ice Futures to USD 55.90/t, while the front year was USD 0.80 lower at USD 63.10/t.

The contracts earlier hit their lowest levels since late June, of USD 55.90/t and USD 62.95/t, respectively.

“[Coal] continues to look weak, as with the rest of the complex,” said a London-based commodities analyst, pointing in particular to sliding gas prices.

The Dutch TTF front-month gas contract fell to its lowest since late July in early trading, of EUR 10.15/MWh, exchange data showed.

Coal-fired generation margins – or the clean dark spread – therefore remained poor in relation to gas – or the clean spark spread – encouraging utilities to favour gas over coal when possible and leading to sluggish spot demand.

Indeed, no cargoes for delivery in northwest Europe (Des ARA) have traded via broker Global Coal so far this month.

The September clean dark spread was last seen in negative territory, at around EUR -3.10/MWh, for a German power plant of 38% efficiency, while the clean spark spread was at around EUR 12.50/MWh, for a 58% efficiency plant, according to Montel data.

“The coal burn has been very weak this summer, as a consequence of the coal-to-gas switching and [this situation] seems likely to continue into September and October,” the analyst said.

High stocks
Furthermore, regional supply remained strong, participants said.

“Stock levels seem to be comfortably high at the moment, and thus any [price] increase will be capped by healthy supplies in the region,” said an analyst with a UK-based consultancy.

Already, there were signs of reduced vessel arrivals at European ports, with inventories at four key ARA terminals assessed this week at their lowest since mid-March of 6.55m tonnes. (see Stocks section).

But the total was still 1.5m tonnes higher than at the same time last year.

Three vessels are scheduled to arrive at the key Rotterdam EMO terminal by the middle of next week, according to port data.

From a technical viewpoint, the API 2 Cal 20 contract faced some further bearish momentum in the near term but losses might be limited, said Tom Høvik, Montel’s head of technical analysis.

“The market is trading below last week’s low of USD 63.35/t,” he said, adding, however, technical indicators signalled a relatively flat outlook for the coming week.

The market would need to break below USD 62/t or above USD 64.75/t to offer more marked directional signals, he said.

Stocks
European coal terminal stock levels as of 26 August, obtained from the respective terminals (against previous week):
EMO (Rotterdam) – 3.4m tonnes (-0.1m tonnes)
OBA (Amsterdam) – 2.36m tonnes (0.06m tonnes)
EBS (Rotterdam) – 0.39m tonnes (-0.01m tonnes)
Ovet Vlissingen/Flushing – 0.4m tonnes (-0.035m tonnes)
Ovet Terneuzen – 0.325m tonnes (0.01m tonnes)
Source: Montel