Free-falling European coal prices pressure fob lower

Market: Coal
05/09/24

A sharp decline in European thermal coal prices so far this week has placed other fob markets under downward pressure in order to price spot tons into Europe, particularly ahead of the winter heating season.

Profit margins for coal-fired generation in key market Germany have risen above those of gas for the winter months, which is expected to encourage more physical trade flows to Europe, and Amsterdam-Rotterdam-Antwerp (ARA) pricing had risen accordingly to allow South African coal to flow.

However, a precipitous fall in prices over Monday-Wednesday this week has closed any arbitrage opportunity and could pressure fob markets lower to hold the arbitrage open.

The physical coal market was being offered much more aggressively this week and European API 2 swaps traded alongside the wider energy complex to a fresh multi-week low.

Argus' physical cif ARA NAR 6,000 kcal/kg assessment fell by $6.59/t on Wednesday to $113.58/t, its biggest one-day plunge since 22 January and the lowest price since 25 July. API 2 swaps had also fallen on Wednesday but marked a less sharp drop than the physical market.

The curve lost an average $2.83/t and volume via the Intercontinental Exchange continued its recent form, spiking to more than 3mn t.

The European market is relatively small in terms pf physical volume, but a period of low demand form larger Asian markets has placed more importance on European demand for the marginal spot ton.

Bids for South African fob Richards Bay NAR 6,000 kcal/kg coal were seen today at $95-98/t fob for October and November loading, relatively in-line with the past few weeks; however, offers were much lower, seen at $112/t for November today, from $122.50/t a week earlier.

This could keep spot fob pricing under pressure, following the European market for some time to come, although should levels move closer to the $100/t level it is expected that Indian demand would return and begin to compete for spot tons.

Looking forward, European coal pricing is expected to be strongly linked to a finely balanced natural gas market, which appears to be highly sensitive to supply-side risks in recent months. This means coal trade could be dictated by more than purely coal-driven fundamentals but could also stand to benefit from increased liquidity in the European market.

By Shreyashi Sanyal

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