US thermal coal arbitrage into Europe open, flows unlikely to increase: market sources

28th May 2018

US thermal coal is currently pricing into the CIF ARA market, but low spot demand, port issues and US coal sellers well sold on term contracts, mean flows are unlikely to increase, traders in Europe said Wednesday, despite an open arbitrage, putting no added price pressure on US coal.

“Central Appalachian (CAPP) coal is already fairly well booked into Europe,” one UK-based trader said.

The source said in principle, US coal is pricing into Europe, but in practice, through being well-committed via contracts, it would be hard for US producers to export significant additional volumes.

A European trader said US producers were bullish regarding the current price in Europe, but he was sceptical they could produce enough to meet demand, which he felt could benefit sellers of lower sulphur Colombian and Russian coals.

“Utilities in Europe seem relatively well stocked at the moment,” said a broker, explaining despite CAPP coal pricing into Europe, there is unlikely to be much need on behalf of consumers in Europe to take advantage of this.

Utilities in Europe typically blend high sulphur US coal with low sulphur Russian or Colombian coal.

A North Europe-based trader said owing to logistical issues at US East Coast ports and low utility demand in Northern Europe, there was not likely be much increase in CAPP flows to Europe.

S&P Global Platts assessed the FOB Baltimore, 15-60 day price at $74.31/mt, normalized to a 6,000 kcal/kg NAR basis, with a CIF ARA, 15-60 day, 6,000 kcal/kg NAR price at $91.70/mt, Friday.

The UK-based trader pegged the Panamax freight from the US East Coast to Rotterdam around $12.50/mt, leaving US coal in the money by $4.89/mt.

In 2017, the US exported 9.89 million mt to Europe, making up around 32% of total coal exports from the US, according to customs data.

According to S&P Global Platts cFlow vessel tracking software, 127 coal-laden and part-laden vessels have arrived at Rotterdam so far in 2018, 29 of which have been from the US.

Source: PLATTS