(Montel) Atlantic basin coal prices may gain some further ground over the coming month as supportive related-market signals and signs of tightening supply offset a broader weakness in generation demand.
The front-quarter API 2 contract rose 8% on the month to USD 55/t, while the front year increased 4.6% to USD 60.35/t, on Ice Futures.
The latter contract reached a five-month high of USD 61.40/t in mid-July.
“At this point, the main driver is the [Cal 21 contract], which at the same time is responding to natural gas, power and CO2,” said an analyst with a coal producer.
He said the front-year contract was “fighting not to fall” below USD 58-59/t.
“But in the longer-term, it seems positive, from a technical perspective,” he added.
An analyst with a coal trading firm also said the coal market was broadly reacting to moves on the Dutch gas and German power markets.
“I’m not seeing a fundamental shift [in supply-demand].”
He noted also the recent retreat in freight rates had provided some further support for coal prices, by opening up arbitrage opportunities to longer-haul markets.
The Baltic Dry Index – which tracks global dry freight rates – has plunged more than 30% from near a 10-month high seen earlier this month.
“[This is] mostly due to the current trade tensions between the US and China, and I think fears of a second Covid-19 wave, due to the outbreaks in Europe and Hong Kong,” the analyst said.
The cost of shipping a capesize vessel of coal from Colombia transatlantic to northwest Europe was pegged last at USD 10.35/t, down more than USD 3 from early July levels, according Arrow Shipbroking Group estimates.
On the currency front, the euro has gained more than 5% versus the greenback since the start of the month, to 1.18 at the time of writing – its strongest since 2018 – making dollar-linked coal contracts more attractive for European buyers.
Meanwhile, there were lingering concerns about reductions to Colombian output, particularly following reports this month that Glencore was seeking to suspend operations at its 15-16m tonnes/year Prodeco unit for four years.
“If Prodeco gets approval to be out for longer, then it will inevitably support API 2 in view of a potentially balanced winter season in Europe,” said a coal strategist with a European trading firm.
He noted a decision on the prolonged suspension was expected in August.
“Overall, current fundamentals suggest API 2 remains supported by reduced supply from Colombia and Russia, while the upside is capped by subdued Pacific basin demand,” said an analyst with a European energy firm.
“If the latter improves, any bullish news from Colombia would likely cause more bullishness for API 2 prices.”
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