(Montel) European coal prices rose to fresh five-month highs this week, underpinned by signs of a more balanced supply-demand picture and supportive technical and related-market signals.
The front-quarter API 2 contract rose 1.8% on the week to settle at USD 53.62/t on Ice, while the front year was up 2.6% at USD 59.38/t.
The front-year contract on Wednesday hit its highest level since 18 February, at USD 60.85/t.
Market participants cited some support from producers – particularly in Colombia and Russia – reducing output in recent months amid efforts to erode market oversupply and thereby underpin flagging prices.
“I think downside is very limited from current levels, given how producers have reacted already and further evidence of industrial activity recovering globally,” said independent analyst Plamen Natzkoff.
Russian producer Suek cut export sales 6.5% in the first half of the year, citing poor demand linked to the coronavirus pandemic.
And Anglo American this week revised down its thermal coal production outlook for 2020 by 4.5%, also due largely to the impact of Covid-19 restrictions on operations in South Africa and Colombia.
“Barring further coronavirus-related impact on the broader economy, coal prices should be able to see further rallies heading into the fourth quarter,” Natzkoff said.
“[But] it could well be a few quiet summer weeks coming up.”
Offering further bullish sentiment, it emerged this week that Anglo-Swiss mining and trading firm Glencore was seeking to suspend coal operations at its Prodeco coal-mining unit in Colombia for four years. (See p.2).
“That announcement is the only bit of significant news I have heard…to account for the current spike in API 2,” said an analyst with a coal-trading firm.
From a technical viewpoint, the Cal 21 API 2 contract may experience some further gains over the coming weeks, said Montel’s head of technical analysis, Tom Hovik.
“The recent structural uptrend persists,” he said, noting the contract could conceivably rise to around USD 65/t in August.
An analyst with a coal producer also pointed to support from related markets, notably carbon. The benchmark EUA contract on Monday achieved a 14-year high of EUR 30.80/t. It was last seen at EUR 26.80/t, 18% higher on the month.
Although a higher carbon price erodes coal-fired generation profit margins – or the clean dark spread – it can also, conversely, prove supportive for coal in light of the bullish impact on power and gas markets.
Meanwhile, the world’s number one consumer, China, increased coal imports in the first half of 2020 by 12.6% on the year to 174m tonnes, customs data showed, offering some bullish sentiment for global seaborne prices.
For June, coal imports reached 843,000t/day, down 6.7% on the year but up 18.5% from May.
“It was the start of restocking, ahead of summer peak [cooling] demand,” said a coal strategist with a utility. He noted also a shortage of domestic production had incentivised increased imports. “[And] I believe import restrictions may not have been that strict last month.”
Source: Montel News
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