Market comment: Volatile prices track other commodities on lack of coal news
After a strong open to the week, coal prices in many markets were eroded over the session on Monday, with traders saying they were tracking other markets such as German power, UK gas and Brent crude.
CIF ARA Calendar Year 2012 started the day at $132.00/tonne, up from a closing level last week of $130.75/tonne. The main reason for this strength was German power. A local election in Germany over the weekend had given cause for additional uncertainty over the longevity of Germany's nuclear fleet, and this was of particular consequence for contracts away from the front end.
Traders said the front end was being sold lower, while the back end pushed upwards from where it had finished last week. "The short-term effects of the moratorium on nuclear power has been priced in," one trader said. "It is the longer-term modelling which is causing some uncertainty at the moment."
This was backed up by a number of other sources, who thought that after a knee-jerk reaction to the German nuclear suspension drove up prices a couple of weeks ago, the market was now normalising on the front end. "This is why, when we see no external influence on the market, prices tend to drift downwards... to correct from the recent highs," said one participant.
The downward drift was in evidence in the afternoon, as CIF ARA Cal '12 fell from an intra-day high of $132.25/tonne to a low of $129.75/tonne, despite the fact there was very little new information to push the price down so sharply.
Another reason given for the fact that Q2 '11 is being sold down compared with the rest of the curve is that the market is approaching the end of the quarter, and it is possible counterparties are looking to roll their positions into the following quarterly contract. "There might be a bit of profit-taking after a big rally this quarter as well," said one trader.
Late in the afternoon, coal prices were upwardly mobile once again as a rally on gas and power resonated across the European energy spectrum. This coincided with a mini rally on front-month Brent, which was able to move up by around $1.00/bbl over the same period to nestle slightly below $116.00/bbl at the end of the day.
With coal's overall sensitivity to external factors, one participant acknowledged he would be reluctant to take up any substantial short positions in the current landscape. "It's a very risky market to sell into," he suggested. "Coal is very sensitive to crude and gas prices, and these are all over the place at the moment."
Another commented that it is currently a "good market to trade intra-day" because of the volatility, but that it is very difficult to take a long-term view on how prices will pan out over the coming two years or so.
But the fundamental picture for the European market in the short run remains relatively straightforward, with inventories at healthy levels and countries supplying the Atlantic Basin able to offer more and more coal into the market.
The story was similar for the Asian market as well, with little by way of news to report. There were rumours of an Australian cargo being accepted by a Japanese utility when it had originally been declined and this was seen as symptomatic of the impact of the earthquake having now been fully priced into the market.
FOB RB and FOB Newcastle swaps followed the overall trend seen on the European market, though, having been sold down from early highs and with the bulk of the losses concentrated on the nearside market. FSJ
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