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Coal swaps comment: Coal swaps are range-bound as strong crude oil stems losses

13 Mar 2012 18:10:44 | csd

Financial coal prices across the three major coal hubs were range-bound on Tuesday as high prices for crude oil put a temporary stop to further losses, despite the fact that coal market fundamentals remain weak as the European coal markets approach the seasonal lull.

The CIF ARA spot contract remained flat day on day, closing at $99/tonne, while the benchmark CIF ARA Year 2013 contract gained $0.05/tonne day on day to close at $113.30/tonne.

Sources pointed out that the market was subdued, with only a couple of isolated flurries of activity.

"People are getting nervy with oil not coming down," one trader said. "It has been a very lacklustre day, and sometimes when there isn't much happening on the screens, people grow very disinterested," another trader added.

Most traders kept a bearish outlook for European prices, quoting ample stocks at the ARA discharging ports, as well as the expected increase in German solar generation.

One source said the oil price could provide a short-term lift before the market declines further: "I think we will go up before we fall further," he said, "A correction is coming, but it will be from a higher starting point."

At midday on Tuesday, the front-month Brent crude traded at $125.80/bbl, up by 46 cents/bbl from Monday's close on expectations that US Federal Reserve meeting would underline data showing that the US economy is recovering.

NBP gas prices showed a similar reluctance to fall lower on Tuesday, adding additional support to the coal curve, with traders unwilling to sell longer-dated contracts for fear of being badly caught out should the oil price suddenly surge.

Indian Ocean and The Pacific

The South African financial coal curve also lacked a clear direction on Tuesday, with contracts recording only minor moves higher or lower across the board.

According to sources, rumours that China is now looking to buy in the international market had little effect on the prices.

One physical trader said that rather than buying South African coal, China is only "cherry picking" - looking at very low, cheap cargoes with calorific value of 3,800kCal/kg NAR upwards. Indian traders are also still on the sidelines of the international market, with approaching monsoon season likely to further hinder demand in the Indian Ocean.

On Tuesday, a 50,000 tonne FOB RB May '12 physical cargo traded at $103.00/tonne, down by $0.25/tonne from a deal done on Monday and $0.20/tonne below the equivalent paper contract.

One trader said the physical deal seemed odd as the physical market had previously been "marked at a premium to paper" but added that the paper market had failed to react to the low physical levels on Tuesday.

"Nobody is getting excited," he said. "Demand is low and there is plenty of cheap coal floating about."

In the Australian market, rumours that the settlement price between Japanese utilities and Australian producers are likely to reach between $115-120/tonne continued to dominate the market.

Two FOB Newcastle April '12 physical deals at $104.25/tonne - one in 25,000 tonnes and one in 50,000 tonnes - were recorded on Tuesday, but one trader said that with Japanese coal burn expected to increase in the third and fourth quarters, prices could easily return to levels of around $120/tonne. MV

Note: All physical deals reported were done through globalCOAL.

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