API 2 coal prices and liquidity spike
Recovering oil prices, global optimism in the wake of recent Covid-19 vaccine news and short-term supply tightness in the seaborne coal market have created increasingly bullish sentiment in the API 2 swaps market this month.
After shedding $5.35/t in the two weeks to 6 November ahead of new lockdown measures in Europe, the API 2 year-ahead has since gained $4.35/t to settle at $58.50/t on 24 November and was trading higher again as of 13:00 GMT on 25 November.
The latest rally includes a single-day gain of $2.40/t on 24 November, the biggest day-on-day increase for a year-ahead swap since July 2019, and pushed the calendar 2021/calendar 2022 pair — which have traded in contango since March 2019 — into a $0.20/t backwardation.
Annualised volatility on the API 2 year-ahead is at its highest since March 2018 at 32.3pc, according to Argus analysis, spurring a spike in paper liquidity during the latest rally.
Some 8.4mn t of API 2 coal swaps traded on the Ice exchange on 24 November, according to Ice data — an 11-month high — and monthly Ice volumes look set to surpass 100mn t for the first time in two years. Ice typically accounts for around 75pc of API 2 paper liquidity, with the remainder traded through CME.
The latest rally and spike in liquidity have been accompanied by rising open interest on forward API 2 swaps, which suggests that counterparties taking long positions have lent support to the market, rather than a squeeze among those with short positions.
Open positions on swaps delivering next year totalled 25.8mn t on 24 November, up from 22.3mn t at the start of the month, according to Ice data. This was close to the 26.1mn t peak on 23 October, but still around 9mn t short of open interest on year-ahead swaps this time last year.
But open positions on swaps delivering in the second forward year — currently 2022 — is now up versus both last year and 2018, following a 4mn t increase in open interest this month to 16.7mn t as of 24 November.
In the options market, bearish positions on right-to-sell year-ahead put options have also been cut this month, pointing towards an increasingly firm outlook among market participants.
The greatest open interest on API 2 year-ahead options was on puts at a $50/t strike at 340 lots at the end of October, but this has been cut back to 240 lots this month. Such puts are out-of-the-money so long as the API 2 year-ahead trades above $50/t and the drop in open interest this month suggests that the holders think it unlikely that $50/t puts will become profitable before expiry in early December.
Vaccine optimism and coal supply tightness lend support
The rally in European coal prices this month comes as a succession of news about positive Covid-19 vaccine trials boosts the global economic outlook for 2021 and beyond, although short-term supply tightness in the global coal market has also factored.
The first vaccine announcement from US pharmaceutical giant Pfizer came on 9 November and Brent crude prices have since gained more than a fifth in value to settle at an eight-month high of $47/bl on 24 November.
Optimism about an eventual global economic recovery in 2021 has fuelled expectations of a partial rebound in seaborne coal demand next year as well, with Noble Resources this week saying it expects demand to increase by 3.8pc or 35mn t in 2021.
Most of this potential growth is likely to centre on Indian demand, bolstered by a more modest recovery in northeast Asian imports — excluding China — and strength in Vietnam and other markets in south and southeast Asia.
The increase in API 2 year-ahead prices has therefore been far outpaced by the equivalent API 4 and fob Newcastle contracts, which held premiums of $12.45/t and $8.91/t, respectively, to the API 2 calendar 2021 yesterday, from $9.75/t and $7.61/t on 30 October.
Short-term supply tightness driven by a damaged shiploader at Newcastle, the potential for extended mining closures over the festive period in Australia and falling coal stocks at Richards Bay in South Africa have also given an additional boost to Asia-Pacific prices.
Excessive rains and suspensions at key miners Prodeco and Cerrejon in Colombia and the potential for only a modest recovery in US exports next year continues to pose a supply-side risk to the Atlantic coal market as well, which may continue to draw down European stocks and tighten the fundamental balance throughout the winter.
But the outlook for coal burn in Europe remains weak, with natural gas once again competing strongly in the year-ahead baseload as recovering US LNG exports, mild fourth-quarter weather and the potential for further short-term economic impacts from the pandemic ease the winter risk premium in the gas market.
German high-efficiency 46pc clean dark spreads have fallen below 55pc efficiency clean spark spreads for year-ahead base-load generation since 18 November, as coal has fallen down the merit order following a brief resurgence in October-November.
The outright year-ahead clean dark spread has fallen by €0.82/MWh this month to €4.11/MWh on 24 November.
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India’s Adani Power raises imported coal use in Jan-Mar
India’s Adani Power raises imported coal use in Jan-Mar
Singapore, 6 May (Argus) — India's leading private sector utility Adani Power more than doubled its use of imported thermal coal during January-March and in the April 2023-March 2024 fiscal year to meet rising power demand. The Bombay Stock Exchange-listed firm used 5.19mn t of imported coal over January-March, more than twice that of 1.99mn t a year earlier. Domestic coal burn also rose by nearly 18pc on the year to 8.83mn t during January-March, following higher availability of local fuel and increased dispatches to utilities. Adani Power consumed 19.44mn t of imported coal over India's April 2023-March 2024 fiscal year. This was also more than double that of 7.66mn t in 2022-23. Its domestic coal burn increased by 10pc on the year to 31.72mn t in 2023-24. Higher imports came on the back of a sharp drop in seaborne prices. The Argus -assessed Indonesian GAR 4,200 kcal/kg coal averaged $57.88/t fob Kalimantan over April 2023-March 2024, down by over 31pc from an average of $84.45/t in the year earlier. The company's fuel cost stood at 3.33 rupees/kWh sold (0.04¢/kWh sold) in January-March, down from Rs5.30/kWh sold a year earlier because of lower blended fuel costs, following a decline in seaborne coal prices. Fuel cost for 2023-24 stood at Rs3.59/kWh compared with Rs4.78/kWh in the previous year. Lower imported coal prices also boosted power offtake under imported coal-based power purchase agreements. The company sold 22.13bn units of electricity in January-March, up significantly from 14.25bn units sold a year earlier. It sold 79.27bn units in 2023-24, up from 53.39bn units in the year earlier. Higher volumes during January-March and the fiscal year were driven by its Mundra, Udupi, Raipur, and Mahan plants — apart from the incremental contribution of the Godda unit — which were commissioned in April 2023. Domestic power sales volumes were driven by growing power demand across the country, the company said. Utility demand could continue to support imports by utilities and lift overall Indian demand for seaborne coal. India imported 14.27mn t of thermal coal in March, up by 8pc from 13.2mn t a year earlier, according to shipping broker Interocean data. Thermal power expansion plans Adani Power operates 15.25GW of thermal generation capacity in the Gujarat and Maharashtra states of west India, Madhya Pradesh and Chhattisgarh in central India, Rajasthan in north India, Karnataka in south India and Jharkhand in eastern India. The firm is eyeing a capacity of more than 24GW by 2029. It is undertaking a brownfield thermal capacity expansion of 1.6GW at its 1.2GW Mahan power project in Madhya Pradesh. It has started developing a 1.6GW expansion at its existing 600MW unit in Chhattisgarh. Adani Power has also emerged as the frontrunner to acquire thermal generation capacity and an under-construction project from domestic debt-ridden Lanco Amarkantak Power. Lanco owned and operated a 600MW thermal power plant in central India's Chhattisgarh state and was planning 1.32GW of generating capacity under the second phase of the project. Adani is in the process of acquiring a 1.2GW debt-ridden thermal power project in south India's Tamil Nadu state. Plant operator Coastal Energen is also having a corporate resolution insolvency process. It is evaluating an organic expansion of 1.6GW, besides considering other inorganic acquisition opportunities, to meet strong demand for thermal power in the coming years, the company said. By Ajay Modi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Canadian rail workers vote to launch strike: Correction
Canadian rail workers vote to launch strike: Correction
Corrects movement of grain loadings from a year earlier in final paragraph. Washington, 2 May (Argus) — Workers at the two major Canadian railroads could go on strike as soon as 22 May now that members of the Teamsters Canada Rail Conference (TCRC) have authorized a strike, potentially causing widespread disruption to shipments of commodities such as crude, coal and grain. A strike could disrupt rail traffic not only in Canada but also in the US and Mexico because trains would not be able to leave, nor could shipments enter into Canada. This labor action could be far more impactful than recent strikes because it would affect Canadian National (CN) and Canadian Pacific Kansas City (CPKC) at the same time. Union members at Canadian railroads have gone on strike individually in the past, which has left one of the two carriers to continue operating and handle some of their competitor's freight. But TCRC members completed a vote yesterday about whether to initiate a strike action at each carrier. The union represents about 9,300 workers employed at the two railroads. Roughly 98pc of union members that participated voted in favor of a strike beginning as early as 22 May, the union said. The union said talks are at an impasse. "After six months of negotiations with both companies, we are no closer to reaching a settlement than when we first began, TCRC president Paul Boucher said. Boucher warned that "a simultaneous work stoppage at both CN and CPKC would disrupt supply chains on a scale Canada has likely never experienced." He added that the union does not want to provoke a rail crisis and wants to avoid a work stoppage. The union has argued that the railroads' proposals would harm safety practices. It has also sought an improved work-life balance. But CN and CPKC said the union continues to reject their proposals. CPKC "is committed to negotiating in good faith and responding to our employees' desire for higher pay and improved work-life balance, while respecting the best interests of all our railroaders, their families, our customers, and the North American economy." CN said it wants a contract that addresses the work life balance and productivity, benefiting the company and employees. But even when CN "proposed a solution that would not touch duty-rest rules, the union has rejected it," the railroad said. Canadian commodity volume has fallen this year with only rail shipments of chemicals, petroleum and petroleum products, and non-metallic minerals rising, Association of American Railroads (AAR) data show. Volume data includes cars loaded in the US by Canadian carriers. Coal traffic dropped by 11pc during the 17 weeks ended on 27 April compared with a year earlier, AAR data show. Loadings of motor vehicles and parts have fallen by 5.2pc. CN and CPKC grain loadings fell by 4.3pc from a year earlier, while shipment of farm products and food fell by 9.3pc. By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Japan's trading firms see metals prices cutting profits
Japan's trading firms see metals prices cutting profits
Tokyo, 2 May (Argus) — Major Japanese trading houses are expecting lower profits from their metals businesses during the April 2024-March 2025 fiscal year, mostly because of lower prices of commodities such as iron ore and coking coal . Japanese trading house Mitsui forecast profits for its metal and natural resource business falling by 14pc on the year to ¥290bn ($1.87bn) during 2024-25, primarily because of lower iron ore prices. Mitsui plans to cut iron ore output by 0.3pc on the year to 60.9mn t at its mining projects where the company owns production ri ghts or a production stake during 2024-25 . This includes the joint venture project Robe River in Australia with Australian iron ore producer Rio Tinto. Japanese trading house Sojitz also expects profits from its metal and natural resource business to decline to ¥35bn, down by 20pc on the year, mostly because of a bearish coking coal market. The company said its overall coal business can cut production costs during 2024-25, partly because it plans larger-scale output at the Gregory Crinum coking coal mine in Australia, without disclosing further details. But Sojitz said it cannot generate higher profits because of lower coking coal prices. The trading house expects the average coking coal price to fall to $230/t during 2024-25, according to the company's chief financial officer Makoto Shibuya, down by $57/t from a year earlier. The company reiterated that the price is not necessarily their selling price. Sumitomo expects profits from its natural resource business would remain flat at ¥72bn on the year, mostly as its nickel production in Madagascar recovers from the output cuts in 2023 , with an aim to produce 19,000t of nickel during 2024-25, up by 9.8pc on the year. A rebound in nickel production could offset possible losses from coal and coking coal prices falling to $266/t and $133/t respectively in the ordinary market, down by $21 and $9, according to the trading house. Sumitomo plans to increase coking coal production by 9.1pc to 1.2mn t but reduce coal output by 4.8pc to 4mn t during 2024-25. By Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
US southbound barge demand falls off earlier than usual
US southbound barge demand falls off earlier than usual
Houston, 1 May (Argus) — Southbound barge rates in the US have fallen on unseasonably low demand because of increased competition in the international grain market. Rates for voyages down river have deteriorated to "unsustainable" levels, said American Commercial Barge Line. Southbound rates declined in April to an average tariff of 284pc across all rivers this April, according to the US Department of Agriculture (USDA), which is below breakeven levels for many barge carriers. Rates typically do not fall below a 300pc tariff until May or June. Southbound freight values for May are expected to hold steady or move lower, said sources this week. Southbound activity has increased recently because of the low rates, but not enough to push prices up. The US has already sold 84pc of its forecast corn exports and 89pc of forecast soybean exports with only five months left until the end of the corn and soybean marketing year, according to the USDA. US corn and soybean prices have come down since the beginning of the year in order to stay competitive with other origins. The USDA lowered its forecast for US soybean exports by 545,000t in its April report as soybeans from Brazil and Argentina were more competitively priced. US farmers are holding onto more of their harvest from last year because of low crop prices, curbing exports. Prompt CBOT corn futures averaged $435/bushel in April, down 34pc from April 2023. Weak southbound demand could last until fall when the US enters harvest season and exports ramp up southbound barge demand. Major agriculture-producing countries such as Argentina and Brazil are expected to export their grain harvest before the US. Brazil has finished planting corn on time . unlike last year. The US may face less competition from Brazil in the fall as a result. Carriers are tying up barges earlier than usual to avoid losses on southbound barge voyages. Carriers that have already parked their barges will take their time re-entering the market unless tariffs become profitable again. The carriers who remain on the river will gain more southbound market share and possibly more northbound spot interest. By Meghan Yoyotte and Eduardo Gonzalez Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
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