Thermal coal for next-year delivery to northwest Europe is poised to extend an unprecedented run of quarterly slumps amid rising supply from the Atlantic Basin and weaker demand from power generators.Year-ahead prices declined today to the lowest level in more than five years. U.K. utilities produced the least electricity since at least 1997 from burning the fuel in June, according to Department of Energy and Climate Change data, and German coal imports were the lowest in almost a year that month, Eurostat figures show. June is the latest month for which data is available for both countries.
Global coal producers boosted exports by 41 percent from 2009 through 2013, according to Goldman Sachs Group Inc. Shipments from Colombia and Russia rose 20 percent and 15 percent, respectively, in the year’s first half compared with a year earlier, according to government data. U.S. exports fell 15 percent over the same period as producers closed unprofitable mines. The U.K. and Germany buy 75 percent of their imported coal from those three countries.
“If one major supplier lowers its exports materially but the other one jumps in to fill the gap, it’s not a good sign, especially in a period of falling prices,” Paolo Coghe, an analyst in Paris at Societe Generale SA, said by phone yesterday. “Russia is also exporting more than last year.”
Since 2007
European year-ahead thermal coal declined 6.3 percent from June 30 to $73.85 a metric ton as of 1:39 p.m. in London, according to broker data on Bloomberg. That’s the lowest since March 20, 2009. The string of quarterly retreats is the longest since at least 2007, data compiled by Bloomberg show. Prices slid 6.5 percent this month.
Coal-fired electricity production in Germany dropped 17 percent in the second quarter from a year earlier, according to Federal Statistics Bureau data, while U.K. coal-power output fell 23 percent over the same period, DECC data showed.
Prices for the commodity in Europe will average $76 a ton in the next quarter, unchanged from estimates for the current period, according to the most recent forecasts by analysts from banks including Credit Suisse Group AG and Societe Generale.
“Significant changes in prices will only come via material changes in the supply and demand balance,” Coghe said in a report published Sept. 12. “For the next few quarters we see neither side changing in a way that would alter the fundamental relationship materially.”
Weaker Demand
The key challenge for the global market is addressing the overhang of supply that has formed as usage slows among all major world consumers, according to Trevor Sikorski, an analyst at consultancy Energy Aspects Ltd. in London.
Global coal use increased 2.8 percent in 2013 from a year earlier and 2.6 percent in 2012, compared with rates of 4.7 percent in 2011 and 7.1 percent in 2010, according to BP Plc’s Statistical Review of World Energy. Demand in China, the world’s biggest consumer, expanded 3.7 percent last year after exceeding 9 percent in both 2011 and 2010.
“People invested in additional capacity on the expectation that the longstanding trend of Chinese imports increasing would never end,” Sikorski said today by phone. “The writing’s been on the wall for coal consumption for a long time. It’s not expanding, and it’s not going to expand outside of some developing markets.”
Source: Bloomberg
