API 2 jumps more than USD 5 as supply tightens

(Montel) European coal prices have surged to one-year highs as concerns about a possible shortfall in winter supply spur buying activity.

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The front-quarter API 2 contact jumped 11.4% from last Friday’s settlement to USD 60.50/t – its highest on a rolling basis since last November – while the front year was 10% higher at USD 60.70/t – a two-month high – on Ice Futures.

“Supply is key issue,” said a UK-based coal strategist with a utility. He said the market in recent weeks had focused on the prospect of reduced demand amid milder weather and widespread lockdowns.

“But what happens if it gets cold or there’s no wind? Then you end up with no supply in times of higher coal generation,” he said. “I think the market has not priced in that scenario.”

Already, coal stocks at four key northwest European coal terminals were this week seen at their lowest since May 2018, of 4.73m tonnes, while strike action and suspensions to production continued to plague output from Colombia.

Also, Pacific basin prices have risen sharply over the past week, potentially enticing more coal away from the Atlantic basin and exacerbating the tightening supply situation.

The Global Coal Newcastle index was assessed last up 9% on the week at USD 67.81/t – nearly USD 13 above the equivalent Atlantic basin Des ARA index price.

Weather-related disruptions to exports from Russia’s far-eastern ports and Australia’s Newcastle hub have further reduced spot availability in the region.

Meanwhile, there was strong spot demand from Turkey, which usually sources much of its winter supply from Colombian exporters, particularly Cerrejon, which has halted operations for nearly three months due to industrial action.

“There are definitely two, probably three, [Turkish] customers in the market for very prompt cargos and this is pushing up the front end of the curve,” said an analyst with a coal supplier. Turkish energy firm Eren, for example, had issued a tender for Q1 2021 material, according to market sources.

But it appears Russian producers may already be stepping in to fill the gap. A source at Russia’s Black Sea coal export terminal at Taman said clients were requesting extra loading positions for January 2021, for cargoes earmarked for Turkey.

Further out, the second analyst said the prospect of vaccine rollouts and a “return to normality” in the possible wake of the coronavirus pandemic continued to support prices.

“This increases the expectation of greater power demand and hence coal usage,” he said.

Source: Laurence Walker, Montel

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