European thermal coal buyers eye reselling in Asia amid sufficient stockpile

With decent thermal coal stockpile at European ports, along with lower coal demand due to strong natural gas storage levels and renewable energy generation, market participants in Europe are looking to tap the Asian market to resell their products, sources told S&P Global Commodity Insights.

The development comes at a time when thermal coal demand in Asia is lackluster due to strong domestic production and lower-than-expected temperatures, even as prices have fallen to levels not seen at least in the last three months.

Market sources in Asia said they have received several offers from European participants, particularly for high calorific value coal, used by the majority of their thermal power plants.

"I bought a shipment from Poland recently and have some more offers for coal above 5,500 kcal/kg NAR. Since global prices have fallen considerably, Europeans are ready to sell even at some loss or the product quality will continue declining," a large India-based buyer and trader said.

Prices under pressure globally

China and India -- which are the two biggest drivers of the Asian thermal coal market -- have largely remained on the sidelines putting pressure on Indonesian coal prices, while South African prices have also suffered a setback due to added competition in the global market.

This in turn has impacted Australian 5,500 kcal/kg NAR prices, which fell from $134/mt during the start of the year to $104/mt May 23.

"South African-origin coal must compete with Colombian, Indonesian, Australian high ash and high moisture coals in the few countries that are buying," a US-based trader said. "When producers live by the index and do not forward sell or hedge coal, they can exaggerate the market in both directions. I suspect this is very true now."

Platts, part of S&P Global Commodity Insights, assessed the FOB Kalimantan 4,200 kcal/kg GAR price at $67.50/mt May 23, a three-month low, while Richards Bay 5,500 kcal/kg NAR was assessed at $85.70/mt, down from $114.65/mt on Jan. 4.

As a result, with European coal also looking to make inroads into Asia, buyers will have even more options than before. However, some market participants feel coal coming from Europe will likely be less preferred by Asian buyers as fresh materials at competitive prices are easily available now.

"The material coming from Europe is slightly old as they were imported before the winters for an expected increase in power demand. Therefore, the properties won't be the same but still if they offer at prices much lower than what is being offered currently, they may get some buyers," the India-based buyer said.

Platts assessed the CIF ARA 6000 kcal/kg NAR at the start of the year at $185/mt, which remains the year-to-date high. The price has slid consecutively over the year and was assessed at $117/mt on May 23.

"Europe has overstocked about 20 million mt of coal so there's no demand now but seems like that will ease over the next five months and prices will likely rebound then," a South Africa-based trader said.

Another trader added that discounted Russian thermal coal, met coal and LNG are heavily responsible for eroding values around the global market due to their discounted prices. Market participants also believe a major increase in Asian prices is unlikely as monsoons will lower the power demand and major countries in Asia seem sufficiently stocked up for now.

Europe's stockpiles start to pinch

Sources said European Union's natural gas storage levels are currently 60.31% full as they increased pipeline gas from the Russians and LNG imports, leading to a continued decline in coal demand.

"Current 6 million mt of ARA stocks could cover 218 days of use at German coal-fired plants, based on the previous rolling four week consumption levels," a US-based trader said.

Prices in Europe have been under pressure due to a mix of factors such as rising temperatures, strong wind generation, as well as an increase in ARA stockpiles and a downtrend in the gas and electricity markets.

According to the India-based buyer, European ports are still holding stocks higher than their capacities. "Spain and the UK are offering shipments of US 6,900 kcal/kg NAR coal as well as Colombian and South African coal. China and India were heard to have been participating in the negotiations, while other countries in Asia have also been offered these origin coal."