Over the past week, spot prices of thermal coal in Europe rose above 375 USD/t amid a rally in the gas and electricity markets.
Within last week, gas quotations reached USD 2,600/1,000m3 (+400 USD/1,000m3 or +18.2% w-o-w), having corrected to USD 2,400/1,000m3 as of August 17. The upward trend in the gas market continues due to the persisting limitation of gas flow through the Nord Stream-1 by Russia and the statement of Norway on the failure to increase the volume of supplies to Europe. The cost of electricity at the TTF hub jumped to 225.10 EUR/MWh (+33.47 EUR/MWh or +17.5% w-o-w).
As a result of the extreme heat in the EU, water levels at shallow areas on the Rhine River, dropped to 33 cm, compared to 52 cm a week earlier, that significantly restricts the ability to transport coal to German power plants by barges. Following the current situation, the government plans to legislate the priority of coal and oil shipments by rail for the next 6 months, that may push end-users to book shipments for Q4 2022. ARA coal stocks are still held at historic highs above 8 mio t.
An uptick in European energy market pushed up South African indices above 355 USD/t. Coal deliveries remain limited, resulting from ongoing issues on the Transnet rail line, caused by lack of locomotives and cable theft. South African exports to Europe in H1 2022 surged 8-folds year-on-year, reinforcing the correlation between these two markets. South African coal company Thungela adjusted its 2022 coal production outlook downward by 8% from 14-15 mio t to 13 mio t. The lowering of the forecast is also partly attributed to higher production costs stemming from inflation.
In China spot prices for 5500 NAR at the port of Qinhuangdao strengthened to 170 USD/t on the strong growth of coal consumption, driven by the record demand for air-conditioning. Prices are also backed by the recovery of chemical plants and the demand from cement plants owing to the government support of infrastructure projects.
Indonesian 5900 GAR traded at 175 USDF/t. Indonesian coal quotes continue to slide due to the reduction in demand in India, caused by the growth of inventories, which also led to the cancellation of several tenders of CIL (Coal India). Growing competition from Russian suppliers and lower demand from China, which significantly increased the domestic production, put additional pressure on Indonesian indices.
Australian 6000 thermal coal price rose above 435 USD/t, based on increased activity from consumers in the Asia-Pacific, including South Korea and Japan, where Australia remains a key supplier. Australia’s Bureau of Meteorology issued a warning about the likelihood of La Nina weather phenomenon, which is expected to come to the continent this autumn, bringing rains and floods to the region.
The recovery of Australian metallurgical coal indexes continued after a long decline, reaching the level above 265 USD/t, supported by the growing demand on the spot market, including new trades of some market participants, which previously remained on the sidelines of the falling market. At the same time, no particular improvement in fundamentals was observed in the steel market.
BHP announced its decision not to make a large-scale investment in BMA, a metallurgical coal mining company in Queensland that is a joint venture between BHP and Japan’s Mitsui. According to a BHP spokesman, this stems from a tax increase under the Australian government initiative to increase royalties in the coal industry, starting from July 01, 2022.