Cif ARA, fob RB prices hit fresh record highs

Market: Coal
04/03/22

European coal prices hit fresh historic highs this week prompted by growing uncertainty over Russian supply as the country's invasion of Ukraine continues to advance.

The cif Amsterdam-Rotterdam-Antwerp (ARA) NAR 6,000 kcal/kg price registered its highest ever day-on-day change on 2 March, rising by $115.30/t to a record $394/t. The API 2 April paper contract rose by $136.25/t to $451.50/t on the same day.

Global supply was already extremely tight prior to Russia's invasion of Ukraine, while the development has heaped further pressure on the market as some counterparties look to shift away from Russian coal. This week saw major energy companies BP, Orsted, Vattenfall and Centrica all break ties with Russian sources.

Traded volumes of API 2 paper contracts jumped on 2 March, with 10.6mn t transacting across the ICE and CME exchanges. This was probably owing to positions being closed, led by Russian banks exiting the market ahead of possible sanctions, given that open interest on the ICE dropped by 13pc to 36,885 lots between 25 February and 1 March.

Russian coal prices increased this week in line with other global benchmarks despite buyers turning their attention to other avenues of supply. But gains were muted compared with other origins owing to the weak demand. The price of Russian high-CV coal shipped from Baltic Sea ports rose by $26/t on the week to $225/t fob.

Suek, Russia's largest coal producer, declared force majeure this week on shipments from the ports of Murmansk and in the Baltic. The declaration is understood to be more the culmination of long-term railing constraints stemming from Covid-19 absences, bad weather and equipment shortages rather than a direct result of the Ukraine conflict.

Despite this, railing issues have been in part related to Russian rail operator RZD prioritising the movement of military personnel and equipment over commodities including coal in February.

While the sanctions imposed on Russia are understood not to have had a major direct impact on the country's coal market so far, the sanctioning of major Russian banks such as VTB and Sberbank, and Russia's exclusion from Swift, have caused buyers' confidence to diminish and demand for Russian coal to drop.

Low stocks at the Amsterdam-Rotterdam-Antwerp (ARA) port are also a symptom of tight supply in Europe. Although inventories rose at four of the hub's main ports by 152,000t on the week to 2.7mn t on 27 February, stocks remain historically low.

A large German trader-utility company called force majeure on a European coal supply contract on 3 March, market participants said.

Extremely tight coal supply in Europe has been compounded by low wind generation. German weekly wind generation is expected to reach a 5.5-month low between 28 February and 6 March. Wind load factors are expected to range between 7-12pc at an average of 9pc over 4-6 March, reducing the weekly output to 7.2GW, according to Spot Renewables. Wind output is expected to recover next week with the load factor averaging 22pc from 7-10 March.

In South Africa, prices also made big gains over the week in response to the Russia-Ukraine crisis and extremely low storage volumes. The NAR 6,000 kcal/kg fob Richards Bay spiked on 2 March, gaining $124/t on the day to $422.50/t.

Stocks at RBCT fell by 5pc on the week to 2.0mn t on 28 February, the lowest volume since 24 January. Inventories on 28 February were down by 47pc on the same day a year earlier.

Despite this, there has reportedly been some improvement recently in the consistency in performance from rail operator Transnet Freight Rail (TFR), a factor that is said to have given more predictability in the management of sales and stocks at port.

One index-relevant trade was reported in the South African market this week, with a 50,000t cargo for May loading trading at $395/t. This was a significant jump from the last trade disclosed for NAR 6,000 kcal/kg fob Richards Bay coal, with a 50,000t cargo for April loading changing hands on 24 February at $250/t.

In the off-specification market, buying interest from India, Pakistan and the Middle East was extremely thin this week given high prices and volatility. Some buyers in India, meanwhile, have reportedly returned to the market to attempt to sell back earlier-acquired tonnage to the market. Although the exact volume of tonnage they are looking to resell is unclear.

A 50,000t NAR 5,700 kcal/kg cargo traded at $242/t fob Maputo GML terminal this week.

European fuel switch levels €/MWh

ICE API 2 volume (mn t) vs open interest (‘000 lots, RHS)

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