European coal prices set for limited gains

19-November-2018

European coal prices looked poised for further near-term gains amid forecasts for below-normal temperatures from next week, but high stock levels at key terminals should provide a ceiling, participants said. The API 2 front-quarter contract traded last up USD 1.65 from Friday’s close at USD 90.50/t, while the Cal 19 was USD 1.75 higher at USD 89.90/t on Ice Futures. On Friday, the front quarter slumped to a six-month low of USD 88.50/t.

A London-based coal broker, said that “[Coal] just seems to be moving in line with other energy markets.”

The Dutch TTF gas December contract traded last up nearly 6% from its Friday close at EUR 25.70/MWh, on Ice Endex, while the equivalent Brent North Sea crude contract gained 1.5% to USD 71.23/bbl.

A commodities analyst with a European trading firm, said that “Colder and less windier weather for the week ahead on the continent seems to be the driver for the near term.”

According to weather service SMHI, temperatures across Europe will fall from 4-5C above seasonal norms at present to as low as 4C below usual by mid next week.

Bearish drivers

Participants said that yet the coal market otherwise continued to face an array of bearish drivers and signals, which could potentially cap price gains. Combined stocks at four key Amsterdam, Rotterdam and Antwerp (ARA) terminals meanwhile remained high, thereby stunting utility demand for purchases of coal for prompt delivery.

Traders and ports sources largely attribute the swelling inventories to low river levels, which continued to hinder coal barge movements to inland plants. From a technical viewpoint, the Cal 19 API 2 contract may struggle to retain any near-term increases, according to Tom Høvik, head of technical analysis at Montel. “As long as we do not see any daily close above last week’s midpoint of USD 89.95/t, there is a risk for seeing the USD 86-87/t area later this week.”

El Nino

At the same time, the prospect of the El Nino weather pattern returning this winter added weight to market sentiment. The US National Oceanic and Atmospheric Administration said late last week there was around an 80% chance of El Nino occurring this winter, somewhat higher than the Australian Bureau of Meteorology’s 70% prediction earlier in the week.

An analyst with a coal producer, said that “El Nino sounds a bit bearish to me [due to] dry weather in Australia and Indonesia, and warmer weather in Japan, South Korea and perhaps China.”

Source: MONTEL