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Coal swaps comment: Global coal swaps lack direction as volumes fall

12 Apr 2012 18:25:18 | csd

Coal swaps held steady across the three main hubs on Thursday, as the market lacked a clear-cut direction despite the rising gas and oil prices.

At the same time, the bearish fundamentals failed to provide much impetus to sell with traders describing the market as subdued.

The European benchmark Year 2012 contract gained $0.30/tonne session on session to close at $113.75/tonne.

"We're seeing very, very low volumes today, not a huge amount of price action. There's been some buying as oil rallied but nothing exciting," one trader said.

A second market participant said the market remains in "holiday mode" after the Easter break, with many traders away from their desks for the week, but added that the market was similarly range-bound a few weeks ago, when more market participants were present.

"We've been observing this for several weeks now. Coal remains directionless, there are too many uncertainties around at the moment to confidently predict direction and assume a position," one trader said.

A third trader agreed, saying market participants just don't want to get involved while the market is so range-bound. "Unless something major happens, people won't take positions," he added.

Market participant continued to debate how the projected fall in exports from the US over the next two years would affect prices in the Atlantic basin (see CSD 11 April 2012).

Despite one 65,000 tonne US cargo being sold into ARA on Wednesday at $95.50/tonne, one trader said the prices delivered into Europe are becoming too low to be economically viable for US producers. "Looking ahead, US coal can't compete into Europe," he said. "Freight can't remain low forever, so it's far more likely that mines will be taken out of production."

However, a second source argued that the Atlantic basin is going through structural changes as the US moves to becoming a strategic supplier from being a swing supplier to the market.

"The US prices will equalise with the international market," he said. "US coal producers have not capitulated to lower their prices, but at some point they will have to."

However, the source said that the US also produces high sulphur coal very cheaply at around $65.00/tonne FOB. Although this coal is not the same quality as index-linked coal, it could continue to undercut prices in the Atlantic basin as utilities can blend it to use for power production. "In the market, off-spec coal is rapidly replacing the benchmark coal," the source said.

A DES ARA June '12 cargo changed hands in 75,000 tonnes at $97.00/tonne on Thursday, slightly below the bid/offer at $97.0097.25/tonne recorded on Wednesday. It was also $1.00/tonne below last June '12 physical trade at $98.00/tonne recorded on 27 March.

Meanwhile, across the equator, South African financial coal prices also remained flat on Thursday as liquidity dropped.

A tender for 5m tonnes of imported coal by Indian power utility NTPC failed to significantly change the picture, traders said.

According to sources, only the occasional FOB RB swap was recorded, with price direction mainly reflecting the moves on the CIF ARA curve.

Australian prices were also little changed day on day. With Japanese coal imports expected to rise as the country fills the nuclear power generation gap, the FOB Newcastle Year 2013 financial contract closed at $114.40/tonne on Thursday, up by $0.30/tonne day on day. The contract is trading $0.85/tonne below the annual supply settlement price with Australian producers at $115.25/tonne. MV

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