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La Nina return could exacerbate coal supply tightness

CoalFreight

12 Oct 2021 08:53

Photo: Shutterstock.com

Photo: Shutterstock.com

London

12 Oct 2021 08:53

(Montel) There is triple the normal chance of the so-called La Nina weather pattern occurring this year, according to the latest forecasts, potentially exacerbating an already tight global coal supply situation over the winter.<br />

Australia’s bureau of meteorology on Tuesday forecast a 70% likelihood of the event returning over the southern hemisphere summer, which lasts from December to February.

The US National Oceanic and Atmospheric Administration also forecast a 70-80% chance that the phenomenon would occur.

The event is generally associated with above-normal rainfall – often resulting in flooding – in affected areas, including key coal producers Australia and Indonesia.

But it can also lead to colder-than-average temperatures in China and other consuming nations, triggering increased demand for power generation fuels.

“This is definitely going to hurt, if La Nina shows its teeth and causes further supply disruptions in major coal-producing areas,” said a coal analyst with a European energy firm.

Strong monsoon season a concern
“Supply is already tight, so a strong monsoon season in Indonesia or Australia would take more volumes away from the market at a time when China and India are suffering due to low stocks.”

She said temperatures in northeast Asia were also forecast to be below normal, thereby lifting heating demand and proving supportive for both coal and gas prices.

Already, the Global Coal Newcastle Index – a benchmark for Pacific coal trading – last week reached a record high of USD 247.53/t.

It was last seen at USD 235/t, up more than USD 150/t from the start of the year.

Cold winter more worrisome
An Australian coal trader, however, said the potential for La Nina was not “a major consideration” at present, given the existing tightness of supply.

“I am sure it will come into the rhetoric from suppliers, as we move forward in time, but the reality is that there isn’t enough coal available today, regardless of potential future weather impacts.”

“I think there is more concern, or focus, on whether the winter will be cold in Asia and Europe, as, if it is, then there is no chance supply will be sufficient,” he said.

Pacific impact in Atlantic
The first analyst also pointed to heavy rains in Colombia and South Africa – also key coal producers – meaning the Atlantic basin market was also “not getting away with it”.

“There is no significant evidence of temperature anomalies in Europe [this winter], but the impact from the Pacific energy market will definitely end up being felt in the Atlantic,” she said.

The front-quarter API 2 contract recently changed hands up USD 9.50/t on the previous settlement, at USD 202.50/t.

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