09 Mar Coal surges to multi-year highs as buyers snub Russia
(Montel) European coal prices on Tuesday soared nearly USD 50 to their highest levels for at least 16 years as utility efforts to source non-Russian material saw buyers scrambling for any available alternatives amid an already tight market.
The front-quarter API 2 contract spiked USD 46, or more than 20%, on Ice Futures versus the previous settlement to USD 264/t – its highest on a rolling basis since Montel’s data began in mid-2006.
The Cal 23 was USD 20.55 higher at USD 172/t, the data showed.
“EU utilities – and even [buyers] in the Pacific – are refraining from buying fresh tonnes of Russian coal,” said an analyst with a coal trading house.
“Therefore, you have buyers trying to replace current commitments and trying to buy more coal from other origins.”
He noted this came at a time of already limited availability from Russia – where widespread coronavirus cases had hampered the country’s logistics network in recent weeks – as well as from other key origins, such as Colombia and South Africa.
Already, a vessel laden with 80,000t of coal left South Africa’s Richards Bay coal terminal for Germany on Saturday, which was the first such shipment in months, VesselsValue ship tracking data showed.
“Russian coal availability has [already] been limited, for logistics issues but from last week [when Russian invaded Ukraine] a real concern arose regarding the performance of deliveries,” the analyst said.
He noted buyers in south European and Mediterranean countries were also reluctant to purchase Russian Black Sea cargoes – from the key export hub at Taman – due to the elevated risk to shipping from the nearby military conflict.
Nearly 10% of Russia’s seaborne exports – or 1.5m tonnes/month – which came from the Black Sea and Sea of Azov, could be lost, according to dry bulk data provided DBX estimates.
“Russian coal exports are likely to be severely disrupted as long as the war in Ukraine is still happening,” it said in a note to clients.
Meanwhile, a head coal trader with a Polish trading house said Poland was likely to impose an outright ban on imported Russian coal, in response to the country’s aggression to its neighbour.
“There is no official news [on a coal import ban] but big companies anyway are reluctant to buy Russian, even without official instructions,” he said.
Late on Monday, the UK imposed a ban on all Russian vessels arriving at UK ports, although it was not immediately clear to what extent this would impact coal arrivals.
An analyst with a coal producer also pointed to coal’s connection to the gas market, amid concerns the fighting in Ukraine could accidently cause damage to the gas transit pipeline system or that Russian president Vladimir Putin could turn off the taps.
“The risk of retaliation by cutting gas flows is of course linked to coal [price gains],” he said.
Europe and its allies have brought in sanctions against Russia for its invasion of Ukraine and while they do not specifically target energy supplies, its ban from the Swift banking mechanism is likely to make it harder for buyers to secure imports.
Russia is Europe’s largest supplier of thermal coal, providing 60-70% of its requirements.