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Front-year coal hits fresh 2-year low on bearish mix

Coal

03 Jun 2019 10:13

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Oslo

03 Jun 2019 10:13

(Montel) European coal prices slumped to a fresh two-year low on Monday amid a bearish mix of high stocks, declining spot demand and economic concerns that were likely to dampen the market this week.  

The API 2 front-year contract traded last down USD 0.75 at USD 63.45/t, after reaching its lowest level on a rolling basis since May 2017, of USD 63/t, on Ice Futures, while closer in the front quarter was USD 1.10 lower at USD 55/t. 

High stocks in Europe and uncertainty related to spot demand outlook in the Asia-Pacific remained the major drivers for coal prices, said a utility-based analyst in Europe. 

On Friday, European physical spot prices declined below USD 50/t, she added, while coal stockpiles at Chinese plants continued to swell amid low spring demand. 

Yet, the summer season in China could see demand for coal in power generation increase should temperatures rise significantly.

“The cooling season has started, thus it will remain interesting how this will play out further.” 

More solar, gas
Meanwhile, in Germany – Europe’s largest power consumer – ample solar production ranging between 19-29 GWh this working week could curb demand for coal-fired power generation, while gas-fired output remained more competitive than coal, said the analyst. 

“Gas remains more competitive than coal on average in Germany, thus higher solar power will continue negatively impacting thermal power demand.” 

In Germany, the July clean dark spread – the profit margin for burning coal to produce power – was last seen at EUR -2.62/MWh, for a power plant of 38% efficiency, according to Montel data, while the gas equivalent, or the clean spark spread, stood at EUR 4.32/MWh, for a plant of 49% efficiency. 

“There is currently a lot of pressure on the API 2 contract, as near-term contracts on [the] NBP and TTF [gas hubs] are also declining steeply,” an analyst with a London-based consultancy told Montel on Friday. 

The July contract on the Dutch TTF gas hub hit a fresh three-year low of EUR 10.90/MWh this morning. 

Dark clouds 
In addition, the ongoing US-China trade dispute and sharp oil price decline were also concerning factors for European coal prices, market participants said. 

“The heavy decline in oil prices combined with weakening economic growth [amid the US-China trade war] represent further downside risks to coal prices ahead,” the commodity analyst said. 

The front-month contract for Brent crude North Sea oil was last seen down at USD 62.38/bbl on Ice Futures and its lowest price since January.

In technical trading, the API 2 Cal 20 contract faced further bearishness in the near term, with prices potentially falling to EUR 62/t this week, said Tom Høvik, Montel’s head of technical analysis. 

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