COAL OUTLOOK – Supply tightness persists on bleak midwinter

(Montel) European coal prices will likely remain supported over the coming days, underpinned still by tight supply and bullish gas markets, market participants said on Monday.

The front-month API 2 contact was seen last up USD 3.75 from Friday’s settlement at USD 155/t, while the front quarter jumped USD 4.50 to USD 148.25/t, on Ice Futures.

This was the highest since 25 November for both contracts.

“It still seems like supply is tight and stocks generally seem pretty low as well,” said a London-based coal broker.

He said stocks at South Africa’s main coal export hub at Richards Bay had declined to multi-year lows of around 1.6m tonnes, while inventories at Amsterdam, Rotterdam and Antwerp (ARA) were also “running down”.

Stocks at four key ARA terminals were pegged this week at a seven-week low of 3.8m tonnes.

“It all paints a fairly tight picture,” he said, adding the API 2 market was also drawing support from the competing gas market.

The front-month Dutch TTF gas contract in early trading jumped to its highest level since early October, of EUR 149/MWh, on Ice Endex, spurred also by concerns of insufficient supply and low stocks.

Gas support

“For the moment, gas, the weather and France’s nuclear situation are the key fundamentally supporting factors for coal,” said a coal analyst with a European energy firm

This was in reference to EDF last week announcing it would shut down its two Chooz nuclear reactors (3 GW) in France for “preventative inspection”, following the discovery of faults at its 3 GW Civaux plant.

“The resulting gas tightness [as gas capacity replaces the nuclear shortfall] means more coal is going to be needed in Europe for longer, maybe even into 2024,” the analyst said.

On the weather front, temperatures across Europe were seen by forecaster SMHI at as low as 4C below seasonal norms until mid-January, thereby driving coal and gas-fired generation demand.

In response, northwest European imports of thermal coal could rise 9% on the year this month to 6m tonnes, according to latest preliminary DBX estimates.

From a technical viewpoint, the front-quarter API 2 contract faced further gains over the coming days, said Montel’s head of technical analysis, Tom Hovik.

“The present set-up indicates a possible test of the USD 158/t resistance level during the next few weeks,” he said, adding a break-out of the current USD 110-158/t range would be needed to trigger sharper moves in either direction.