Coal outlook bullish despite weak Chinese import data

LONDON (ICIS)–Coal prices may appreciate over the remainder of 2018 even despite recent data showing falling imports from the world’s largest producer and consumer, China.

The European-benchmark Rotterdam coal front year has recovered from a low of around $82.00/tonne in mid-November, reaching above $89.00/tonne on Thursday. Prices previously fell steeply, driven down by oil, a mild start to the winter, and Chinese import restrictions.

Authorities in Beijing wish to support domestic coal miners, but abandoned similar constraints last year when freezing temperatures led to a heating crisis in the north of the country.

As such, the temperature outlook in China is the key driver facing the coal market heading into the peak winter season. Online forecasters on Thursday indicated that mild weather is likely in week 51, but there is some cold-snap potential after.

Closer to home, low wind is bringing coal into the German power mix. ICIS analysts on Thursday forecast wind generation averaging just 12.5GW over the next nine days, compared to 19.8GW across December 2017.

With bullish carbon also supporting power prices, German clean dark spreads have widened to the point where most coal plants are firmly in the money next year. This is incentivising forward power hedging as generators lock in profit margins, a supportive factor for coal prices in Europe.

Momentum indicators signal that coal is in a short-term uptrend under technical analysis models. While the Rotterdam front year is overbought after six straight session-on-session gains, its 200-session moving average should support prices around $89.00/tonne. This may prevent a significant downward correction in coming sessions, enabling further gains after a consolidation period.

ICIS analysts have a bullish outlook for carbon, due to tightening auction volumes in December and next year. This would provide further upward pressure on clean dark spreads and by extension coal in Europe.