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Coal swaps comment: Bears regain CIF ARA curve; FOB Newcastle front end sold down

09 Mar 2012 18:36:23 | csd

A bout of profit-taking and a weak euro pushed the CIF ARA coal swaps curves into bearish territory, while the front end of FOB Newcastle was sold off heavily as part of a downward price correction.

The two-day bull run on the CIF ARA curve was snapped on Friday. A number of drivers behind Thursday's spikes on the curve reversed. The euro tanked against the US dollar. Brent crude was also steady for most of the session. It rallied towards the close, but low liquidity stifled any appetite for coalto follow.

Instead, coal followed the German power and, to an extent, NBP gas curves down. The CIF ARA benchmark Cal '13 contract fell $0.85/tonne from Thursday's close in Friday's early-morning trades, with the rest of the curve roughly following.

The front year managed to retrace some of the decline to trade once at $114.20/tonne at the close. The contract was assessed $0.10/tonne lower, to take account of the last liquid market and sources' assessments.

"A little bit of profit-taking came into it today," said one broker about the downward movement, "but it's been quiet, with quite low volumes, so there was no major sell-off or anything."

The front end of the curve and prompt reflected most of the bearish assault.

The continued weak physical outlook in Europe helped widen the contango for another session.

The suggestion by a bank that LNG supplies to Europe might get squeezed by Asian buyers willing to pay higher prices has failed to shake the dominant short-term view about weak demand in Europe.

Australian sell-off

But the bears took a much stronger grip of the Australian FOB Newcastle paper market. A physical deal for a 25,000 tonne April cargo went through at $105.00/tonne - $9.00/tonne discount to the last deal on that product, on 9 February (through globalCoal).

"The liquidity has been really low down there," said one European coal trader. "The front is being sold down heavily today. I think people are realising that nothing special is going on down there and prices are becoming more realistic."

The Q2 '12 traded down heavily from Thursday's levels. A number of deals went through at $108.00/tonne, which is a discount of $1.20/tonne against Thursday's trades. The contract managed to pare some of the decline, pushing back up intra-session to $108.25/tonne.

The South African FOB Richards Bay financial market was caught between the two other hubs. Prompt prices were squeezed by the sell-off in Australia, while the curve tracked its European counterpart. FOR

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