Coal prices gain traction while oil markets struggle
By Henning Gloystein
SINGAPORE, June 28 (Reuters) – Thermal coal prices have picked up in June, bolstered by mining output cuts in countries such as China and the United States, as well as strong demand in emerging markets in Asia, and supporting analyst calls that the market has bottomed out.
Like other energy commodities, led by oil, coal prices have risen from multi-year lows reached in early 2016.
But while oil markets seem to be losing steam over economic concerns in China as well as Britain’s vote to leave the European Union, physical coal markets have gained traction in June.
“We have raised our coal price forecasts due to a more aggressive contraction in global mine production than we anticipated, predominately in China,” BMI Research said in a note to clients.
“We now forecast Newcastle coal to average $53/tonne in 2016 (previously $51/tonne) and $57/tonne in 2017 tonne (previously $52/tonne),” it added.
Physical coal cargoes for prompt delivery from Australia’s Newcastle port cost around $52.85 per tonne, up from a low of under $50 earlier in June.
South African cargoes from the Richards Bay terminal fared even better, rising 14 percent since late May to $57.70 a tonne, while imports into Europe’s terminals at Amsterdam, Rotterdam or Antwerp (ARA) have risen 20 percent since early April to $51.30 per tonne.
Analysts said that coal prices had likely bottomed out this year, following years of steady declines, and that the reasons for the upward correction were mainly a sharp fall in output in China and the United States, as well as strong demand especially from emerging economies in Asia.
“Supply cuts will be most aggressive in China and the U.S…. India and South-East Asia will be the demand bright spots. In India, a large pipeline of coal-fired power-plants will see the country’s imports remain robust, on top of aggressive domestic coal production growth. In Indonesia, a surge in coal demand for domestic power-plants means that coal exports from the country have already peaked,” BMI said.
The price recovery in physical coal is also showing in futures markets, where European API2 2017 contracts have recovered more than 50 percent since hitting 13-year lows earlier this year, bouncing back above $50 per tonne this month for the first time since September 2015.
(Reporting by Henning Gloystein; Editing by Ed Davies)