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Coal, like oil, lifted by supply squeezes and record demand

Published 08/06/2016, 12:39 pm
Updated 08/06/2016, 12:40 pm
© Reuters.  Coal, like oil, lifted by supply squeezes and record demand
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* All major coal benchmarks back above $50 per tonne

* Bad weather impacts mining in Asia, Americas

* Low European renewable output pushes demand

* Indian heatwave spurrs demand

By Henning Gloystein

SINGAPORE, June 8 (Reuters) - All major benchmarks for thermal coal - the world's second most important energy fuel after crude oil - have pushed back above $50 a tonne for the first time this year, driven by output cuts, supply disruptions and increased demand.

After years of declines, tightening fundamentals have been supported by a surge in oil prices and a weakening dollar, while storms in some producing regions and hot weather in Asia have exacerbated price movements.

"Nothing suggested to me that we were about to experience such a price push," said Georgi Slavov, global head of energy, ferrous metals and shipping research at commodity brokerage Marex Spectron.

European coal futures TRAPI2Yc1 have risen over 8.5 percent already this month to near one-year highs of $54 per tonne, and the market is more than 50 percent above its February 13-year lows.

Physical coal prices have also gained, with cargoes from Australia's Newcastle port GCLNWCPFBMc1 adding nearly $4 since mid-May, to $54.25 a tonne, while shipments from South Africa's Richards Bay terminal GCLRCBPFBMc1 have risen $6 since late May to $56.60 a tonne.

Coal shipments for delivery into Europe's ports of Amsterdam, Rotterdam and Antwerp (ARA) GCLARAPDSMc1 have risen from under $47 in late May to $50.55 a tonne.

Following years of falling prices, with coal futures tumbling over 80 percent between 2008 and 2016, producers have cut back investment into new capacity and closed down unprofitable mines.

"Production has been declining for a year which is helping the market to rebalance," said Slavov.

Generally declining output has been met by surprise events that further pushed up prices, including storms and floods around production hubs like Australia, Indonesia and Colombia, said Slavov. the same time, demand has been strong in India as utilities re-stock ahead of the imminent monsoon season and record heat drives up up the use of air conditioners in homes, offices and public buildings. Europe, coal demand has been pushed up by relatively good power generation margins as well as unusually low wind power generation since the beginning of the year.

Finally, oil prices LCOc1 virtually doubled, while the weakening dollar makes imports of fuels like oil and coal, which are traded in U.S. dollars, cheaper for countries using other currencies at home, spurring demand.

The higher prices, coupled with extremely low prices for dry-bulk freight .BADI , have also opened up unusual trade routes, such as exporting Colombian coal to South Korea and Japan in a voyage that can last two months. CHART-Coal futures prices

http://tmsnrt.rs/1TUtTes CHART-Physical coal prices

http://tmsnrt.rs/1VLiIts

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Richard Pullin)

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