EU thermal coal consumption reduces amid rising LNG reliance, heatwaves

Thermal coal consumption in Europe faces further reductions as reliance on LNG increases, sources said July 25, as prices for imported thermal coal have risen amid anticipation of further heatwaves across the continent.

"European consumption is low, and they are trying to lower further," a Europe-based buyer said. "There is more reliance on LNG in Europe. Infrastructure for coal logistics will also prevent them from using more coal even if they want to. They need to rely on LNG even when prices are higher. European buyers are also very selective about miners, and they are willing to pay a premium for supply guarantee of good grade coal."

Over the past week, eight shipments of thermal coal have arrived at European ports, containing a total of 386,300 mt of coal from the US, Colombia, Latvia and the Netherlands, according to S&P Global Commodities at Sea data. The figure was 23% lower than the 503,200 mt of thermal coal that arrived in Europe the week prior.

Six of the shipments from the past week entered the Netherlands, containing 299,800 mt, while 69,700 mt entered Denmark and 16,800 mt entered Germany.

"[Natural] Gas inventories in Europe remain well above normal now for this time of year," a US-based trader said. "EU gas storage is almost full and the gas demand for generation vs available tonnage, demonstrates the clear availability of spot LNG in the market," a US-based trader said.

A further expected heatwave across Europe could also aid the displacement of coal, sources said.

"It is very hot across the northern Hemisphere, with record temperatures everywhere, and more to come this week," a second US-based trader said. "In Europe, wind and solar in the north, with cheap LNG generation in the south, is keeping their grid afloat without coal."

The heatwave across the continent dried up water levels, which would hamper loading at European ports. Rivers were reportedly too shallow for cargo ships to be fully loaded.

"Low coal probably related to low water level of rivers like Rhine," an Atlantic-based trader said.

Thermal coal pricing in the European market has risen over the past week amid expectations of record-high temperatures.

CIF ARA 6,000 kcal/kg NAR physical prices ranged between $114.75-$115/mt intra-week, hitting the low point of $114.75/mt July 25, S&P Global data showed. Platts, part of S&P Global Commodity Insights, assessed the CIF ARA 6,000 kcal/kg NAR at 114.75/mt July 25, up 17% on the week from $98/mt on July 18. However, the July 24 price was 25 cents lower on the day and 70% lower on the year from $378.75/mt on July 25, 2022.

"As far as coal producers, they would prefer to deal directly if possible and avoid traders," a Europe-based trader said. "The primary reason is because both the generator and the producer experience production issues and are amenable to bending schedules instead of pricing everything. Europe has increased reliance on LNG. Nevertheless, such negative factors as coal generation cutbacks, high stockpiles and low gas prices are still in place."

EU gas storage levels sat at 83.74% capacity as of July 23, compared to 66.27% capacity seen at this time in 2022, Aggregated Gas Storage Inventory data showed. EU member states are required to fill their storage sites to 90% capacity by Nov. 1.

Since Russia's invasion of Ukraine, European countries saw the importance of diversifying their energy supplies. LNG became an important component of European energy mix, sources said, with the market seeing some long-term purchasing contracts signed to ensure sustainable and secure LNG supplies.

"Sluggish growth expectations across Germany's manufacturing sector is contributing to weak coal demand within Europe despite thermal coal prices prevalent this year," analysts at S&P Global said. "Though service firms were 'cautiously optimistic,' goods manufacturers are expecting a difficult 12 months amidst competitive disadvantages (globally), high costs, political and economic uncertainty."