European coal edges up as Atlantic fundamentals tighten
An expected tightening of the fundamental balance in the Atlantic because of reduced supply availability continued to offer support to physical coal prices in Europe this week.
Argus' daily cif Amsterdam-Rotterdam-Antwerp (ARA) index began the week lower but rose in subsequent sessions and averaged $50.10/t, which was 19¢/t higher on the week. No index-relevant deals were reported.
Power sector coal burn in western Europe fell sharply again in July and is likely to remain soft or weaken further in August, despite a recent jump in month-ahead generation margins driven by a spike in German power prices and lower carbon costs.
But while European coal burn is likely to fall on the year in the second half of 2020, the decline should slow compared with the first half and looks set to be outpaced by an even bigger contraction in seaborne imports. This would progressively tighten the supply-demand balance in the Atlantic and draw down stocks heading into the new year, when a more significant rise in seasonal coal burn is being priced in by the market.
Aggregate coal burn in Germany, France, the UK and Spain fell by around 2.8GW in July, according to grid operator data, with January-July output now down by an average of 4GW on the year. This is the equivalent of around 1mn t/month less NAR 6,000 kcal/kg-equivalent coal burn in 42pc-efficient plants, across the seven-month period.
Net seaborne imports to the same four markets were down by a more severe 2.7mn t/month in January-May, the latest period for which data are available, which implies that the Atlantic has already been undergoing a gradual rebalancing following a period of oversupply last year. In January-July 2019, aggregate coal burn was around 1.4mn t/month lower on the year against only a 500,000t/month decline in imports.
European coal stocks have adjusted lower as a result of tighter fundamentals in 2020, with ARA port stocks around 1.3mn t down on the year at a 22-month low of 5.6mn t, although this remains above the three-year average.
And Atlantic fundamentals are set to tighten further as the year progresses, as the decline in power sector coal demand should slow while uncertainty surrounding supply, particularly in Colombia, remains.
Low gas prices driven by comparatively full stocks and a glut of LNG in the global market mean that western European coal plants are still struggling to compete in the power sector. Coal accounted for only 6pc of fossil fuel generation in Germany, Spain, the UK and France in July, down from 11pc in the same month last year and a 2016-18 average of 27pc.
This dynamic — in addition to incremental gains in renewable generation and potential weakness in overall power demand because of slow economic activity during the Covid-19 pandemic — will likely continue to reduce European coal burn on the year in the remaining months of the year.
But the year-on-year decline will probably slow compared with earlier in 2020, as widespread fuel switching in the second half of 2019 means there is more limited potential for additional coal displacement in 2020. A likely drop in nuclear generation because of additional constraints in France should also dampen the decline in demand for fossil fuel-based generation in general.
Power sector coal burn in western Europe may therefore decline by closer to 500,000 t/month in August-December, according to Argus analysis based on current nuclear availability, three-year average renewable load factors and assuming a 3-5pc decline in overall power demand.
On the supply side, imports may continue to fall by a greater margin than consumption in the months ahead, weighing on the aggregate stock balance and lending countervailing support to prices.
In Colombia, Drummond and Cerrejon have both revised down their annual production guidance, while Glencore's Prodeco unit remains on care and maintenance and is seeking permission to remain off line for the foreseeable future.
Glencore today revised down its global production guidance by 18mn t to 114mn t, which it said mainly reflected the situation with Prodeco and anticipated volume reductions in Australia. Prodeco produced 8.3mn t in the second half of 2019, but output has been zero since late March.
The Colombian mining regulator is expected to take a decision about Prodeco's request to suspend operations in the coming days.
Russian and US exports to Atlantic markets have also fallen sharply in response to prices in 2020, with little prospect for growth in the second half of the year. But Russian supply has the potential to recover from recent lows if European prices do recover. Argus' NAR 6,000 kcal/kg netback price to the Kuzbass region from Ust-Luga ports was $16.33/t on 24 July, up from an average of $8.42/t in June, which may incentivise a rise in spot sales in the near term.
Germany, Spain, the UK and France received a net total of 2.9mn t/month in August-December last year, but imports slipped to just 2.1mn t/month in the first five months of the year, Eurostat data show.
If the fundamental balance in Europe does progressively tighten in the third and fourth quarters, it is likely that additional risk premium will be priced into physical coal prices, as market prices currently point to a larger seasonal recovery in coal burn in early 2021.
First-quarter 2021 wholesale coal, power and carbon prices on 30 July suggest that some 60pc of the German coal fleet can earn a positive margin for base-load generation, compared with only 54pc of the fleet in the fourth quarter and around 42pc in August-September. A steep contango in the gas curve also means that coal currently faces less intense competition from competing fuels for base-load generation early next year.
South African prices weaken
South African physical coal prices weakened this week, which reduced the market's discount to Europe to $2.02/t — the narrowest spread since September 2019. Argus' NAR 6,000 kcal/kg fob Richards Bay weekly assessment fell by $1.21/t to $52.12/t.
In the off-specification markets, demand for NAR 5,500 kcal/kg coal from Indian industrial buyers picked up this week. Three index-relevant deals for NAR 5,500 kcal/kg coal were reported, with an August cargo changing hands at a discount of $12.50/t to API 4 swaps and two September cargoes dealing at minus $13.25/t and minus $13.50/t.
In the NAR 5,700 kcal/kg market, one index-relevant cargo traded at a discount of $8.25/t to API 4 paper.
At least two NAR 5,700 kcal/kg cargoes were sold to a Turkish utility last week for September-October delivery at a premium of $2/t to the API 2 benchmark, according to participants. Shipments of South African coal to the Turkish market jumped from zero in the second quarter of 2019 to 512,000t in April-June this year, according to port data.
Pakistan's Lucky Cement closed a tender last week for 660,000t of South African minimum NAR 5,800 kcal/kg coal for 2021 delivery. The firm said it purchased the entire volume requested in the tender, but the price was not disclosed.
Related news posts
G7 coal exit goal puts focus on Germany, Japan and US
G7 coal exit goal puts focus on Germany, Japan and US
London, 1 May (Argus) — A G7 countries commitment to phase out "unabated coal power generation" by 2035 focuses attention on Germany, Japan and the US for charting a concrete coal-exit path, but provides some flexibility on timelines. The G7 commitment does not mark a departure from the previous course and provides a caveat by stating the unabated coal exit will take place by 2035 or "in a timeline consistent with keeping a limit of 1.5°C temperature rise within reach, in line with countries' net-zero pathways". The G7 countries are Italy — this year's host — Canada, France, Germany, Japan, the UK and the US. The EU is a non-enumerated member. The announcement calls for accelerating "efforts towards the phase-out of unabated coal power generation", but does not suggest policy action. It calls for reducing "as much as possible", providing room for manoeuvre to Germany, Japan and the US. Coal exports are not mentioned in the communique. Canada and the US are net coal exporters. France, which predominantly uses nuclear power in its generation mix is already scheduled to close its two remaining coal plants by the end of this year. The UK will shut its last coal-fired plant Ratcliffe in September . Italy has ended its emergency "coal maximisation plan" and has been less reliant on coal-fired generation, except in Sardinia . The country has 6GW of installed coal-fired power capacity, with state-controlled utility Enel operating 4.7GW of this. The operator said it wanted to shut all its coal-fired plants by 2027. Canada announced a coal exit by 2030 in 2016 and currently has 4.7GW of operational coal-fired capacity. In 2021-23, the country imported an average of 5.7mn t of coal each year, mainly from the US. Germany Germany has a legal obligation to shut down all its coal plants by 2038, but the country's nuclear fleet retirement in 2023, coupled with LNG shortages after Russia's invasion of Ukraine, led to an increase in coal use. Germany pushed for an informal target to phase out coal by 2030, but the grid regulator Bnetza's timeline still anticipates the last units going offline in 2038. The G7 agreement puts into questions how the country will treat its current reliance on coal as a backup fuel. The grid regulator requires "systematically relevant" coal plants to remain available as emergency power sources until the end of March 2031 . Germany generated 9.5TWh of electricity from hard-coal fired generation so far this year, according to European grid operator association Entso-E. Extending the current rate of generation, Germany's theoretical coal burn could reach about 8.8mn t. Japan Japan's operational coal capacity has increased since 2022, with over 3GW of new units connected to the grid, according to the latest analysis by Global Energy Monitor (GEM). Less than 5pc of Japan's operational coal fleet has a planned retirement year, and these comprise the oldest and least efficient plants. Coal capacity built in the last decade, following the Fukushima disaster, is unlikely to receive a retirement date without a country-wide policy that calls for a coal exit. Returning nuclear fleet capacity is curtailing any additional coal-fired generation in Japan , but it will have to build equivalent capacity to replace its 53GW of coal generation. And, according to IEA figures, Japan will only boost renewables up to 24pc until 2030. The US The US operates the third-largest coal-power generation fleet in the world, with 212GW operational capacity. Only 37pc of this capacity has a known retirement date before 2031. After 2031, the US will have to retire coal-fired capacity at a rate of 33GW/yr for four years to be able to meet the 2035 phase-out deadline. By Ashima Sharma Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Mitsui makes delayed exit from Paiton power project
Mitsui makes delayed exit from Paiton power project
Tokyo, 1 May (Argus) — Japanese trading house Mitsui completed on 30 April the ¥109bn ($690mn) sale of its stake in Indonesia's 2,045MW Paiton coal-fired power plant in east Java following multiple delays. Mitsui originally tried to complete its exit by the end of March 2022 . It said the procedures with Paiton's offtaker Indonesian state-owned power firm Persero took more time than expected without providing further details. Japanese thermal power producer Jera withdrew from Paiton by selling its 14pc share in 2021. Mitsui sold its 45.515pc share in Paiton Energy, as well as a 45.515pc stake in Netherlands-based subsidiary Minejesa Capital and a 65pc stake in Singapore-based IPM Asia that are related companies of the Paiton project. Mistui sold the stakes to RH International (RHIS), which is a Singapore-based subsidiary of Thai power producer Ratch, and Indonesian power company Medco Daya Abadi Lestari's subsidiary Medco Daya Energi Sentosa (MDES). Paiton Energy is now owned by RHIS, MDES and Qatar-based company Nebras Power. Mitsui did not disclose their ownership ratios. Paiton consists of the 615MW No.7, 615MW No.8 and the 815MW No.3 units, which sell electricity to Persero through an unspecified long-term contract. Mitsui now holds 9.6GW of power capacity assets globally, with 8pc being coal-fired projects. The exit from Paiton cut its coal-fired ratio by 8 percentage points, while raising its renewable ratio by 3 percentage points to 32pc. Growing global pressure against coal-fired power generation likely prompted Mitsui to exit Paiton. Energy ministers from G7 countries this week pledged to accelerate "efforts towards the phase-out of unabated coal power generation". By Nanami Oki Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
New US rule may let some shippers swap railroads
New US rule may let some shippers swap railroads
Washington, 30 April (Argus) — US rail regulators today issued a final rule designed to help customers switch railroads in cases of poor rail service, but it is already drawing mixed reviews. Reciprocal switching, which allows freight shippers or receivers captive to a single railroad to access to an alternate carrier, has been allowed under US Surface Transportation Board (STB) rules. But shippers had not used existing STB rules to petition for reciprocal switching in 35 years, prompting regulators to revise rules to encourage shippers to pursue switching while helping resolve service problems. "The rule adopted today has broken new ground in the effort to provide competitive options in an extraordinarily consolidated rail industry," said outgoing STB chairman Martin Oberman. The five-person board unanimously approved a rule that would allow the board to order a reciprocal switching agreement if a facility's rail service falls below specified levels. Orders would be for 3-5 years. "Given the repeated episodes of severe service deterioration in recent years, and the continuing impediments to robust and consistent rail service despite the recent improvements accomplished by Class I carriers, the board has chosen to focus on making reciprocal switching available to shippers who have suffered service problems over an extended period of time," Oberman said today. STB commissioner Robert Primus voted to approve the rule, but also said it did not go far enough. The rule adopted today is "unlikely to accomplish what the board set out to do" since it does not cover freight moving under contract, he said. "I am voting for the final rule because something is better than nothing," Primus said. But he said the rule also does nothing to address competition in the rail industry. The Association of American Railroads (AAR) is reviewing the 154-page final rule, but carriers have been historically opposed to reciprocal switching proposals. "Railroads have been clear about the risks of expanded switching and the resulting slippery slope toward unjustified market intervention," AAR said. But the trade group was pleased that STB rejected "previous proposals that amounted to open access," which is a broad term for proposals that call for railroads to allow other carriers to operate over their tracks. The American Short Line and Regional Railroad Association declined to comment but has indicated it does not expect the rule to have an appreciable impact on shortline traffic, service or operations. Today's rule has drawn mixed reactions from some shipper groups. The National Industrial Transportation League (NITL), which filed its own reciprocal switching proposal in 2011, said it was encouraged by the collection of service metrics required under the rule. But "it is disheartened by its narrow scope as it does not appear to apply to the vast majority of freight rail traffic that moves under contracts or is subject to commodity exemptions," said NITL executive director Nancy O'Liddy, noting it was a departure from the group's original petition which sought switching as a way to facilitate railroad economic competitiveness. The Chlorine Institute said, in its initial analysis, that it does not "see significant benefit for our shipper members since it excludes contract traffic which covers the vast majority of chlorine and other relevant chemical shipments." By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
G7 countries put timeframe on 'unabated' coal phase-out
G7 countries put timeframe on 'unabated' coal phase-out
London, 30 April (Argus) — G7 countries today committed to phasing out "unabated coal power generation" by 2035 — putting a timeframe on a coal phase-out for the first time. The communique, from a meeting of G7 climate, energy and environment ministers in Turin, northern Italy, represents "an historic agreement" on coal, Canadian environment minister Steven Guilbeault said. Although most G7 nations have set a deadline for phasing out coal-fired power, the agreement marks a step forward for Japan in particular, which had previously not made the commitment, and is a "milestone moment", senior policy advisor at think-tank E3G Katrine Petersen said. The G7 countries are Italy — this year's host — Canada, France, Germany, Japan, the UK and the US. The EU is a non-enumerated member. But the pledge contains a caveat in its reference to "unabated" coal-fired power — suggesting that abatement technologies such as carbon capture and storage could justify its use, while some of the wording around a deadline is less clear. The communique sets a timeframe of "the first half of [the] 2030s or in a timeline consistent with keeping a limit of 1.5°C temperature rise within reach, in line with countries' net-zero pathways". OECD countries should end coal use by 2030 and the rest of the world by 2040, in order to align with the global warming limit of 1.5°C above pre-industrial levels set out in the Paris Agreement, according to research institute Climate Analytics. The countries welcomed the outcomes of the UN Cop 28 climate summit , pledging to "accelerate the phase out of unabated fossil fuels so as to achieve net zero in energy systems by 2050". It backed the Cop 28 goal to triple renewable energy capacity by 2030 and added support for a global target for energy storage in the power sector of 1.5TW by 2030. The group committed to submit climate plans — known as nationally determined contributions (NDCs) — with "the highest possible ambition" from late this year or in early 2025. And it also called on the IEA to "provide recommendations" next year on how to implement a transition away from fossil fuels. The G7 also reiterated its commitment to a "fully or predominantly decarbonised power sector by 2035" — first made in May 2022 and highlighted roles for carbon management, carbon markets, hydrogen and biofuels. Simon Stiell, head of UN climate body the UNFCCC, urged the G7 and G20 countries to lead on climate action, in a recent speech . The group noted in today's outcome that "further actions from all countries, especially major economies, are required". The communique broadly reaffirmed existing positions on climate finance, although any concrete steps are not likely to be taken ahead of Cop 29 in November. The group underlined its pledge to end "inefficient fossil fuel subsidies" by 2025 or earlier, but added a new promise to "promote a common definition" of the term, which is likely to increase countries' accountability. The group will report on its progress towards ending those subsidies next year, it added. Fostering energy security The communique placed a strong focus on the need for "diverse, resilient, and responsible energy technology supply chains, including manufacturing and critical minerals". It noted the important of "guarding against possible weaponisation of economic dependencies on critical minerals and critical raw materials" — many of which are mined and processed outside the G7 group. Energy security held sway on the group's take on natural gas. It reiterated its stance that gas investments "can be appropriate… if implemented in a manner consistent with our climate objectives" and noted that increased LNG deliveries could play a key role. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more