The Coal Trader

Coal News for Mining & Investing Professionals

Thermal Coal Prices Rise as Supply Tightens

European coal prices gained ground in Friday trading, after relatively sharp losses in the previous two sessions, as signs of tightening supply offset the influence of sluggish demand and sufficient stocks.

The front-month API 2 coal contract traded last up USD 1.55 at USD 115/t on Ice Futures. But the contact was still on course to end the day nearly 4% lower on the week.

A head coal trader with a European trading house said, while there was very little physical spot demand, there were some emerging constraints to supply.

“There is less Colombian coal on the market and South African coal is also moving to Asia,” he said, regarding Europe’s largest and third largest thermal coal suppliers, respectively.

Colombian issue
Europe was likely to receive its lowest volume of Colombian coal this month since December 2020 of just over 1m tonnes, according to provisional Kpler data, while Asia would receive its highest amount since the vessel-tracking firm’s data began in 2017, of 2.8m tonnes.

“Colombia is redirecting coal to Asia due to poor demand in Europe,” the trader said, adding however this had tightened European supply, and thus pushed up prices.

“It’s a vicious circle,” he added.

But an analyst with a coal-trading firm said the market was still broadly bearish, with relatively high stocks deterring spot purchases.

“I’d imagine they’ll try to consume the ARA [Amsterdam, Rotterdam, Antwerp] stocks first,” he said.

ARA coal inventories were pegged this week at 5.52m tonnes, albeit down 3% on the week and the lowest since 27 December, according to Montel estimates.

Furthermore, clean dark spreads – or the profit margin for burning coal to produce power – remained poor, the analyst said.

The May German clean dark spread was seen last at just EUR -32/MWh for plants with an average efficiency of 42%, while the equivalent margin for gas units stood at around EUR -11/MWh, Montel calculations showed.

“Gas should be preferred at current prices,” the analyst said.

Ample gas
The front-month Dutch TTF gas contract was seen last EUR 0.64 higher at EUR 26.85/MWh on Ice Endex but was nevertheless still eyeing a 2-3% decline week on week.

Ample gas in storage and the prospect of milder weather meant the market was “very relaxed”, Montel reported earlier.

And in the carbon market, prices gained ground in afternoon trading, in line with coal but weak gas prices coupled with limited demand from industrial and investment funds would likely cap gains, said analysts.

The benchmark Dec 24 EUA contract was last seen EUR 2.16 higher at EUR 60.66/t on Ice Endex.

By Laurence Walker