(CAA Analytics) European steam coal indices are held above 51 USD/t as a result of the rally of gas prices in EU along with forecasted heat waves across a number of European countries and steady recovery of business activity in Eurozone.
TTF gas quotes reached 6.609 euros/MWh (+30% to July 29, 2020). Heightened trading activity on the paper market amid expectations of a surge in electricity consumption contributed to the growth of prices. During August 10-16, 2020, a 40 degrees heatwave in EU may boost local coal-fired power generation.
The growth of business activity in Europe also supports coal quotes on the paper market. According to Markit Economics, the purchasing manager index (PMI) of Eurozone rose to 54.9 points in July (+6.4 points to June 2020). PMI economic indicator reaching above 50 points indicates an increase in business activity. However, excess ARA reserves of 6.83 mio t (+3% to mid-July 2020) and weak demand for the material in Europe limit the growth of coal prices.
South African coal indices inched higher due to growing demand from Indian cement producers willing to increase production. Cement companies are renegotiating October coal supply contracts for earlier dates: August and September to meet current demand for products in India. However, in August the Indian state-owned mining company CIL plans to sell 15-20 mio t of high-calorific coal to local consumers. This may negatively affect coal imports from South Africa as CIL aims at reducing the coal import bill of India.
Apart from that, the public unrest in Witbank in the North-West of South Africa forced temporary suspension of a part of the railway lines. A number of coal traders believe that further protests may disrupt transportation of coal from local mines to the port of Richards Bay, which reserves reached 4.1 mio t (unchanged to July 29, 2020).
Despite fears of tightening import controls, caused by rising tensions between Australia and China, demand of Chinese customers for the Australian coal soared, strengthening quotes.
On July 28, 2020, Australian Defense minister Linda Reynolds announced support for a tough US foreign policy towards China and expanded military cooperation with Washington. Australia has previously condemned China’s territorial claims in the South China Sea.
Low demand of Indian buyers for Indonesian low-calorific coal depressed coal quotes. According to the market participants, limited coal supplies due to heavy rains and production cuts no longer support the Indonesian coal indices.
Cheap local coking coal, lack of clarity among Chinese buyers regarding the allocation of new import quotas for Australian metallurgical material, as well as the abundant coking coal reserves at a number of metallurgical enterprises in China dampen demand and weaken the prices of Australian metallurgical material.
International steel companies are reorganizing production capacities despite losses stemmed from Covid-19 crisis.
Source: CAA Analytics
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