Coal swaps comment: Bears retreat as profit taking lifts rates at end of week of losses
After five sessions of consecutive losses, the three major coal swaps hubs all ticked up on Friday alongside a stronger fuels complex, even though an industry conference in Beijing, China, ended on a bearish note, failing to provide the market with the optimism traders had been expecting.
After Europe's benchmark CIF ARA Year 2013 contract fell to its lowest level since January on Thursday, profit-taking kicked in, lifting the product higher, traders said.
The stronger fuels complex, in particular crude oil, also underpinned the financial coal markets, although liquidity had all but dried out by Friday's close, traders said.
"After we reached the lows yesterday, profit-taking started," one trader said. "This continued today, although liquidity is exceptionally low, even for a Friday."
CIF ARA Cal '13 opened the session at $111.60/tonne - up from the previous close at $111.30/tonne - and made steady small gains throughout the session to close up by $0.80/tonne day on day at $112.10/tonne,.
According to data collated by ICIS, however, the number of clips that changed hands on the benchmark contract - normally the most actively traded note on the coal curve - was down from 32 clips recorded in the previous session to 22. Overall, a total of 86 clips was reported across the three main hubs.
Closer in on the European curve, CIF ARA May '12 also retraced some of the losses made in the week, ticking up by $0.60/tonne day on day to close at $97.10/tonne.
Fundamentally, however, market participants agreed that the coal market remains bearish, with little or no interest in high-quality coal shown during the week.
The Beijing conference, which had been expected to improve liquidity and bring some optimism to the global coal market, ended on a flat note, with few deals concluded (see physical coal comment). "People came away from the conference with real pessimism, which is strange because historically this event has been very positive and bullish for the coal market," one trader said.
However, lack of trade and a bearish outlook did not affect the FOB RB and FOB Newcastle markets on Friday as contracts along both curves ticked higher day on day.
Although traders said Japan is now more or less the only country interested in FOB Newcastle 6,000kCal/kg coal, liquidity in the Newcastle spot market has improved in the past few weeks.
On Friday, the FOB Newcastle front-month contract gained $0.55/tonne day on day, to close at $113.20/tonne, while its corresponding South African product rose $0.70/tonne on the day to close at $100.00/tonne.
Looking ahead, market participants were unwilling to forecast the direction in which the financial coal market is likely to move. While supply is healthy and demand remains low, recent price volatility has made the market unpredictable, traders said. "I don't think people are lying when they say they don't know where coal will move," one trader said. "I think they just really don't know." MV
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