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Coal faces pressure from strong supply, tepid demand

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Source: Montel, November 20, 2019

Strong supply and muted demand will continue to pressure the European coal market this week, although potential risks to supply and significantly higher Asia-Pacific prices may limit losses.



The API 2 front-quarter contract traded last down USD 0.93 from Friday’s close at USD 58.90/t, while the Cal 20 slipped USD 0.70 to USD 63.20/t on Ice Futures.



“We hold a stable view on coal prices,” said a coal analyst with a Swiss trading house, citing possible support from the threat of miner strikes in South Africa, a weaker carbon price – which improves coal-fired generation margins – and signs of slowing coal-production growth.



South African coal miners will decide early this week on whether to strike at mines owned by producer and trading firm Glencore, in response to a dispute regarding worker rights and living conditions.



In the carbon market, the benchmark EUA contract traded this morning at a six-week low of EUR 23.33/t.



Bearish factors
“On the other hand, inventories are still pretty high in key consumer countries, China seems to have stopped imports for now and gas prices remain very competitive,” the analyst said.



Combined stocks at two of northwest Europe’s main coal import terminals – EMO at Rotterdam and OBA at Amsterdam – were seen this morning at around 6m tonnes.



“I guess the Cal 20 can move lower still, as it gets closer to [expiry],” said a trader with a coal supplier, adding if coal-fired generation levels remained low the contracts for the first and second quarters next year could also face further pressure.



But he noted prompt API 2 prices may also receive some support from higher Pacific-basin prices, which could entice more cargoes – and reloadings from stock – from the Atlantic for shipment east.



The Asia-Pacific benchmark Global Coal Newcastle index was seen last at a premium of nearly USD 15 to its Atlantic basin counterpart, the Des ARA index, which was pegged at just USD 52.38/t.



Stocks
European coal terminal stock levels as of 18 November, obtained from the respective terminals (against previous week):
EMO (Rotterdam) – 3.5m tonnes (-0.1m tonnes)
OBA (Amsterdam) – 2.5m tonnes (unchanged)
EBS (Rotterdam) – 0.325m tonnes (-0.035m tonnes)
Ovet Vlissingen/Flushing – 0.44m tonnes (-0.045m tonnes)
Ovet Terneuzen – 0.21m tonnes (-0.035m tonnes)

News Source: Montel
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