From Substack. Joe Aldina
International thermal coal prices have been on an uptrend over the past couple of weeks, with Chinese supply-side reforms probably the most significant factor driving the coal markets. Of course, as I write this, coal prices are having a modest down day, though prices are still up w/w.
We’re pleased to see that API2 coal for December delivery is trading above $98/mt and Jan and Feb futures recently broke the $100/mt level. European coal burn has held up over the past week due to rising power demand, even as natural gas prices have languished and wind resources have been generating at high levels. While high winds are expected to continue, mild temperatures are expected to normalize at the end of this week, which should boost coal burn. Coal inventories at ARA are running above 4 million mt though, which will dampen further price gains. In sum, we’re looking for continued small gains in prices, not expecting API2 prices to take off in the short term.
European natural gas futures have fallen below €31 per megawatt-hour (~$10.50/MMBtu), close to May 2024 lows. Substantial LNG arrivals, strong Norwegian pipeline flows and mild weather have kept the gas market in balance. In North Asia, LNG prices fell as warmer conditions in China curbed consumption, freeing additional cargoes for Europe. EU gas storage stands at 82.6%, below last year’s levels, but high enough to be comfortable. We’re watching Russian strikes on Ukrainian energy as that could spur Ukrainian gas demand this winter and impact overall EU gas and coal demand.
In China, spot thermal coal prices at Qinhuangdao continue to inch higher, with prices up $2/mt on the week to $111/mt. Supply-side reforms, declining port inventories and the start of winter in northern China are all supporting higher prices.
Australian high-cv spot prices are up ~$5/mt w/w to $109/mt and Jan and Feb futures are trading around $117/mt, up nearly $10/mt on the week. Japanese and Chinese buyers are ramping up purchases ahead of winter and the Chinese import arb window remains open for international shipments, lending support to prices. Australian suppliers have also reported limited availability for spot volumes.
We have been bullish on the Australian thermal coal names for several months now, and WHC, NHC and YAL have all made double-digit moves higher in last month’s trading as thermal coal prices improve. Still room for prices and shares to move incrementally higher in my opinion, and we’ll work to get some more coverage out on the Aussie names this week through TCT and our podcast.
Happy trading.
-JA |
