Euro Coal-Prices dip 50c to $1/T with oil steep fall

Jun23,2011 4:58pm GMT

* Aug S.African trades at $118/T, down 40 cents
* Coal shows minimal reaction to oil price crash

LONDON, June 23 (Reuters) - Prompt physical coal values softened by around 50 cents to $1.00 a tonne on Thursday in a limited reaction to oil's $8 a barrel price dive, traders and utilities said.

Oil crashed by more than $8 to a four-month low on Thursday after the world's consumer nations said they would band together to aid the global economic recovery by releasing emergency oil reserves for the third time ever.

"Coal swaps for both API2 and API4 did fall but it was a marginal reaction considering the extent oil dropped," one European trader said.

"There were some key players absent from the market today which may explain the lack of trades, bids and offers in Europe," another trader said.

European coal burn by utilities has risen during the past week because the profit to be made by generating power by burning coal is higher than profit to be made by burning gas, utilities said.

But they added that the burn was only marginally higher in most cases and most generators are fully covered through the summer, with the exception of one large utility which has been an active spot buyer.

Few spot trades were reported on Thursday, most were banks buying rather than end-users.

Although many market players readily acknowledge the fundamental weakness of the European market and what appears increasingly as weak demand in Asia, sellers of either swaps or physical are finding ready buyers.

So many players have long positions still and they would buy to defend them, regardless of the lack of end-user demand, traders and utilities said.

The idea of using capesize vessels as coal floating storage is being considered by at least one Asian player because of the lack of Pacific demand .

Although this may prove economically unviable, the fact that it is being given any kind of thought is indicative of the impact China's current buying hiatus is having.

Not everybody is relentlessly bearish, however. Producers who are still receiving enquiries from China, Taiwan and South Korea, albeit at prices $10/T below trades a week ago, said they do not expect prices to drop more than $5 at most in the near-term because oil or fresh supply disruptions will support prices.

TRADES
An August loading South African cargo traded at $118.00 a tonne via brokers, down 40 cents.
Two September loading South African cargoes traded at $118.80 via brokers, down 35 cents.

PRICES
An August delivery DES cargo was bid at $119.50 and offered at $122.00, down $1.50.
A September delivery DES cargo was bid at $120.00 and offered at $122.25, down $1.00.
(Reporting by Jackie Cowhig;Editing by Alison Birrane,Thomson Reuters)

Keywords: COAL PHYSICAL