European coal trade 2010

European coal trade has been rather lacklustre this year in some
respects, particularly over the summer months. The
supply/demand balance appears to be moving back towards an
increase in demand ahead of the northern winter and the lead
up to Coaltrans in Amsterdam in October. At the start of this
year, there was some anticipation of a pick up in trade as the
year got under way, but spot and tender market activity has
been less visible in Europe than other regions during 2010.
Since January, there have been a number of highlights noted with
regard to the European coal market, but the region is not a
growth market and reads quite differently from that seen in Asia
these days.
UK Coal reported total production of 7mt (million tonnes)
for the year ended December 2009. This was 0.9mt or 11%
lower than in the previous year due to difficult mining conditions
later in 2009. Revenue was about £317m compared with £393m
in 2008. The average sales price for coal was about £1.87 per
Gigajoule compared with £1.92 per Gigajoule in 2008.
In January, Portugal’s EdP was rumoured to have been in the
market seeking supplies of coal for 2011 and 2012. The utility
was understood to have approached existing suppliers in
Colombia and the USA. In February, Energy Company of
Ukraine had indicated a shortfall of some 1.5mt in the country’s
short-term thermal coal requirements. Power station coal
stocks were understood to be low (four days supply in one
case) and domestic coal producer Ugol Ukrainy did not have
sufficient supplies. Regulatory constraints, however, were
expected to exacerbate the situation as the power generators
might not be able to purchase the required imports directly
under current legislation. Suppliers needed to contact Ugol
Ukrainy directly as the producer was thought to be seeking
imported material.
During February, in Greece, Titan’s cement demand appeared
to be increasing based on its recent market activity, and the
company was back in the market seeking 40kt of thermal coal.
Standard specification material was required for delivery in April
on a delivered ex ship basis to Patras. The timing would allow
for use with the petcoke the company had been seeking that
month. The petcoke market continued to firm according to US
producers, having breached the US$70/t FOB (free on board)
level, basis 7,500 kcal/kg NAR (net as received) in February. This
equated to about US$56/t FOB adjusted to basis 6,700 kcal/kg
GAD (gross air dried) but with significantly higher sulphur
content than standard specification internationally traded
thermal coal. Earlier, the cement sector had fired up, but not for
coal on that occasion with Titan in the market seeking 340kt of
petcoke for delivery during March to November. Specifications
included CV 7,500 kcal/kg NAR and S 4.5% (maximum). Petcoke
prices had been rising in early 2010 at the time of the enquiries.
Also in February, there had been speculation in the
international spot market that more Polish thermal coal could

be offered in the ensuing months as domestic demand appeared

to be softening amid the economic recession. Kompanhia
Weglowa was rumoured to be finding it difficult to place up to
4mt of planned production in 2010 with the country’s power
sector. Buyers in the UK, Germany, Finland, and Denmark in
particular are believed to have been discussing the situation with
the sellers at the time. The raft of activity in the eastern
Mediterranean in early 2010 had continued, with further
business seen in the cement sector in Turkey. Tracim Cimento
was understood to be seeking 50kt of coal for delivery during
March to May. Russian material in the Black Sea was quoted as
being priced similarly to the e-coal.com Europe – ARA Indicator
Price at the time. Colombian shippers were also believed to be
showing some interest here due to the subdued markets
elsewhere. Meanwhile, the winter freeze had been having a
greater effect than usual on supplies of Russian material
according to customers in Europe this time around.
Environmental issues were among the main concerns at the
receiving ports with reports of high dust levels in the coal due
to temperature-related difficulties in washing coal along the
Russian coal chain. Polish and Colombian shippers were believed
to be looking at the opportunities this had presented.
In March, reports indicated that a consortium of Russian coal
producers was planning to construct a new 10mtpa (million
tonnes per annum) coal export facility at Leipaja in Latvia.
Market activity had picked up a little on the other side of the
continent at that time, with Croatia’s Plomin seeking two
Panamax cargoes of coal for delivery in late April/early May,
and early June.
The trading of UN carbon emissions credits (certified
emission reductions, CER) in Europe halted on 15 March due to
the discovery of used CERs being back in circulation. Over the
counter trading was frozen, and exchange prices reportedly
plummeted to €1/t CO2. A loophole in the system appears to
have allowed some European Union countries to resell the

credits in the international market with the potential to profit

from the deal. The incident brought into question the value of
such used credits to those companies obligated to purchase
CERs under EU law as they would be worthless under the EU
emissions trading scheme.
In the spring there were signs that coal demand in parts of
Europe may decrease as availability of hydropower had risen.
This was notable in Portugal where some reports indicated that

deliveries of coal had been rescheduled for later in the year.

There had been warmer weather in Europe during the first
couple of weeks of April, and this was reported to have led to a
reduction in thermal coal consumption. Stocks of thermal coal
on the pads at the ARA terminals had been rising as a result.
South African spot prices had firmed, however, and the steady
demand from India and elsewhere had been continuing with
numerous deals reported in mid-April. Other shippers to
Europe had seen their spot prices firming in line with that rise.
Some Mediterranean activity boosted European interest again,

but apparently not on a large scale.

Back in April there were plans to pursue expansions in the
coal sector as sentiment began to improve. In the United
Kingdom, London Mining was looking to develop its coking coal
unit during the next couple of years following the acquisition of
International Coal in Colombia. The company also planned to
construct coke ovens as part of its development plans.
It was hoped that coal revenue might improve at troubled UK
Coal during 2010. The company was rumoured to have started
production in the new seam at Kellingly, with production due to
start at the new face at Thoresby at that time. Production at
Dawmill was also rumoured to be due to start in April while

merger talks with Hargreaves Services were also continuing.

In May, news from a coal conference in Europe suggested
sentiment was rather downbeat for business, but the event took
place during the renewed economic concerns in the Eurozone
and the related stock market downturn.
The lower demand for coal in Europe had a noticeable effect
on Atlantic prices when supply tightened in May. Coal stocks
were understood to have been built up by management at
Richards Bay Coal Terminal in anticipation of the transport strike
which began in mid-May, but this had been at the expense of
normal loading rates over the previous month. Coal producers
were anticipating that they might have to reduce output if the
strike continued. Market reports indicated that there had been
little impact due to the strike, and price movements had been
related more to lower consumer demand in Europe and the
softening oil price.
The Europeans may find quite a difference in market prices
from their suppliers in Colombia due to the potential of Asian
buyers taking more coal from there in the coming years. The
first signs of this became apparent in April this year. There
appeared to be a two-tier spot market for Colombian thermal
coal at that time, with the logic appearing to be to establish a
longer-term market by offering large FOB discounts in Asia.
Little prompt spot tonnage basis 6,000 kcal/kg NAR and
standard sulphur and ash, has been reported sold in the north
Atlantic market during the previous few weeks. Shippers had
been reported elsewhere as selling there for US$60–70/t FOB
but with no details of quantities or qualities. Shippers
commented that why should they sell at US$20/t less than their
competitors on a delivered basis in Europe? The reported sales
into Asia had been at those prices, but for reportedly lower
quality product that would not be easily sold in Europe under
current demand conditions. Some traders had, however, been
telling their peers that they have been selling into Europe at
US$60–70/t FOB basis 6,700 kcal/kg GAD whereas our reports
were based on the shippers’ views about the north Atlantic
prompt spot market. Some market players were understandably
concerned about the situation regarding differing price reports.
The Asian sales had been reportedly priced at around US$50/t
FOB but with no details of the coal specifications. In our
assessment of the e-coal.com Colombia Spot Price we
maintained the usual basis for prompt spot sales in the north

Atlantic rather than quote a price based on the new Asian sales

of varying type, and had made comments about this in our
weekly publication, Coal Market Intelligence. This was to continue
until the facts become clear about the quality, tonnage, and
delivery times in all regions. Two separate prompt spot markets
may emerge with significantly different FOB price levels.
In late May, buyers in Rotterdam were understood to have
been seeking Russian coal at a discount to the prevailing market.
They may have been using the reports of low-priced Colombian
coal being sold to Asia to negotiate lower prices. It appears the

Russian exporters had been taken aback by the bids and had

been seeking further and more sophisticated market intelligence.
Meanwhile, Russian shippers to the Mediterranean markets
appeared to have been securing prices close to the then
e-coal.com Europe – ARA Indicator Price amid tighter supply in
May. Spot prices appeared to be around US$5.00/t FOB basis
6,700 kcal/kg GAD higher than the spot price in the Baltic at the
time, suggesting around US$93.00/t FOB same basis.
In June, US coking coal exporters on the Atlantic coast
continued to report fairly steady demand with some 20mt
expected to be recorded for the six months ending on 30 June.
European buyers had been active despite a reported lacklustre
recovery there, while traditional buyers in South America had
taken steady tonnage.
In the United Kingdom in June, Hargreaves Services pulled
out of a possible merger with UK Coal following due diligence
over the previous few weeks. The company acknowledged UK
Coal’s extensive asset base but decided not to proceed with the
plans to merge, and UK Coal announced its intention to
continue development of its mines in England.
At the time, Canada’s Western Coal acquired 100% of Welsh
anthracite and PCI (pulverized coal injection) producer,
Energybuild following a recommended offer announced in early
June. Energybuild was valued at £54.4m and has an inferred
recoverable coal resource of about 36.9mt. The miner reported
positive results in May with its PCI material tested by steelmaker
Corus and increased sales are expected this year and in the
future. The miner also anticipated increased export potential for
its coal and signed new distribution agreements with Hargreaves
Services which is expected to open up more export
opportunities as the miner ramps up production. Western Coal
believed its expertise could be applied to ramp up Energybuild’s
output to its full potential more rapidly through full ownership
of the operation.
There was some international market activity in France in
July, although consumption was to be made elsewhere. Lafarge
was seeking a broad range of material for delivery to its
operations in Asia during the next three years. At least 2.15mt
is required during 2011, with 1.03mt in 2012, and 0.51mt in
2013. The enquiry was understood to have attracted interest
from a number of sources with lower CV material as well as
higher ash coal producers.
Russia’s Mechel is reported to have accounted for 4% of coal
exports through Hampton Roads during the first half of 2010
following its recent start to shipments from the Bluestone
operation to Russia.
There were reports of some activity in the European thermal
coal market in July, possibly due to the depletion of stocks of

quality coal in Colombia amid the prolonged strike there. The

strike by workers at Glencore’s La Jagua mine appeared to have
had relatively little upward impact on the Atlantic and European
spot markets in late June according to traders. Shipments of
South African coal to Asia were also contributing to the
tentative enquiries being made by the Europeans, as well as
possible disruptions to coal supply by the floods in Colombia.
Indonesian exporters have been enjoying some additional
business in more distant markets including Europe and the USA
although volumes remain relatively small compared to the major
Asian markets.
In mid-August, demand for US thermal coal had been firming
as some European consumers were reported to be in the
market again at that time. German buyers were making
enquiries in the first week of the month, and there were new
reports that Italy’s Enel had bought two Panamax cargoes of
Central Appalachian coal for delivery in Q1 2011. At the time
there was a surge in freight rates on all the major coal routes as
the recovery from recent lows appeared to be maintaining its
momentum. Meanwhile, a shiploader at Hampton Roads was
damaged by strong winds at the start of August causing a
backlog of vessels for some two weeks and impacting Atlantic
and European trade.
The prospects for Colombian supply remain positive,
although demand in Europe does not at present. The latest
statistics indicate that Colombia exported 34.02mt of thermal
coal during H1 2010 which was an increase of 3.04mt or 9.8%
compared to the same period last year. The new Asian market
has proved significant so far this year, with 5.8mt of exports
reported to have been shipped there during the first half. China
was the main consumer with 3.12mt reported to have been
imported, and 1.49mt of that shipped by Cerrejon. Drummond,
Glencore, and Vale also exported significant tonnages to China.
European markets have decreased this year, and 16.7mt was
recorded in H1 2010, which was 1.87mt or 11.2% less than
during the same period in 2009. The USA imported 5.7mt

during H1 which was 1.9mt or 28.7% less than in H1 2009.

With regard to infrastructure developments, the government has
given approval for the construction of the new Puerto Nuevo
Capesize port in Cienaga in which Glencore’s Prodeco has a
stake of 96%. Capacity is understood to be 32mtpa when
completed.
In the coking coal market in Europe, the US shippers have
been making some sales recently, although business has been
sporadic. US hard coking coal has been softening in price in
early September, with low vol material being offered in the
Atlantic market for around US$215/t FOB compared with about
US$220/t FOB the previous week. High-vol product is priced at
about US$20/t FOB less. Trade is understood to be thin as
players begin to negotiate domestic contracts for next year.
In Germany in September, Stadtwerke Hannover is
understood to have purchased two Panamax cargoes of coal
following a recent tender. The October delivery cargo is
believed to be Russian coal at a price of about US$88.00/t FOB
basis 6,700 kcal/kg GAD. The cargo for delivery in Q2 2011 is
reported to be around US$10/t higher on a delivered basis.
Another previous enquiry for US CAPP coal is believed to have
been unsuccessful as prices were above expectations.
In September in Turkey, Tracim Cimento was understood to
be seeking a couple of Handysize cargoes of Russian coal in the
spot market. Delivery was required in September and October.
The Turkish cement sector has again been active in the coal
market recently, and another spot tender was reported in July
with Tracim seeking two Handysize cargoes of Russian material.
Delivery was required in August and September. Back in April,
power producer, Eren was seeking 150kt of coal with some
required for prompt delivery and the remainder in Q3.
The South African spot market has seen less demand from
Europe this year, although buyers are still active at the time of
writing, and are always monitoring the offers made by the
shippers. At the start of September, a spot deal was reported at
US$87.00/t FOB basis 6,000 kcal/kg NAR for a 50kt cargo for
delivery in October. A 75kt cargo was sold for US$85.15/t FOB
same basis for delivery in September, and another similar cargo
was sold for US$86.00/t FOB. Mid-week another 50kt cargo
was sold for US$87.50/t FOB for delivery in October. For
anthracite consumers in Europe, the South African prices are
maintaining their premium over standard thermal coal, with
value-in-use continuing to be an important element. The latest
reports suggest a premium of around 23% is being gained by
anthracite exporters in the metallurgical markets, indicating a
price of about US$112/ FOB.
For the coming months, European coal trade is likely to
continue in the rather sporadic manner seen during the past
nine months. The region has been recovering from the sharp
decline of late 2008, but at a rather slow pace and in a
somewhat fragile manner. It has been realized for a number of
years that Europe is not a growth market for coal compared to
the newer Asian markets with India and China dominating there,
but it will nevertheless remain a major consumer of coal in the
years ahead. Supply sources have moved more to the Russian,
Polish, Colombian, and US regions while the previous major
suppliers in South Africa are seeing growth in India and
elsewhere now. Some tonnage continues to arrive from
Indonesia, but with the recovery in the freight market during the
past months the economics will dictate that the Europeans will
be buying coal from their closer neighbours for the foreseeable

future.

Dr Tim Jones is Director of e-coal.com Consultancy and Editor of the weekly publication Coal Market Intelligence which covers 11 spot markets worldwide, gives key information on the latest deals and tenders, company news, people and jobs, industrial relations, and ports, shipping, and freight rates.