Euro steam coal spreads widen and activity muted

Monday, 19 Dec 2011

Reuters reported that physical prompt thermal coal prices were little changed again on Friday but few players were active in the market and the bid/offer spreads widened as a result.

In the absence of fresh spot trade to give clear price direction, coal is tracking oil, equities and the euro, as it has for the past few months. Oil edged up near GBP 104 a barrel on Friday consolidating after heavy falls earlier in the week due to the weaker dollar and concerns about US sanctions against Iran but euro zone debt worries capped gains.

There was so little coal trading activity on Friday however that prices barely reacted to oil steadier tone. Traders, producers and utilities are focused more on Q1 where the hot spots of demand might be and what kind of support for prices could come from severe weather.

Australia is preparing for another active cyclone season as a La Nina weather pattern again brings heavy rains. The impact of another La Nina is not expected to be as severe as last year when successive cyclones and tropical storms through the winter and spring flooded coal mines in Queensland states and caused coal prices to spike.

One European trader said "Few people among the usual players were in the market, the holidays seem to have started early and the bid/offer spreads are so wide that clearly very little if anything is going to trade."

There is more talk in the market of substantial tonnages of American high-sulphur coal with 1.5% to 3% sulphur content arriving in Europe and more to come during 2012.

Utilities say they have already absorbed as much blend able high sulphur coal as they can for the next few months much of this is held on stockpiles in ARA and at power plants. Traders with long positions in US coal who had expected to place this in Europe are now hoping that China and India will buy more of this material if it is discounted enough.

Failing that, competition to win the relatively few tenders to buy coal issued in the Atlantic basin is expected to hot up as new entrant traders and banks look for all openings to sell physical coal.

Chinese importers are still enquiring for prompt coal cargoes although buying has slowed but the price window for imports remains wide open, according to a commodities research note issued by Credit Suisse.

(Sourced from Reuters)