The European coal market continues to be less spectacular than those in Asia and the Americas, although business has been better than many might have expected a year ago when some countries had taken much less coal by Q3 than in 2009. The United Kingdom was the prime example, but a recovery has been seen this year after 2010 was seen as something of an anomaly there. The recent economic situation in parts of the European Union has, however, had an acute impact on financial
markets and sent some jitters around the energy and steel markets as a consequence. Much of 2011 has been a challenging time for coal industry professionals when sentiment and other data have been sending mixed messages, making it more difficult to predict and plan the future of their operational needs.
The major suppliers of thermal and coking coal to the European consumers have once again been concerned about the prospects for the rest of 2011 and beyond, as the current situation has developed and persisted during Q2 and Q3. Traders and shippers in the Americas, both north and south have been unsure of the direction the markets would take, but despite turmoil in other businesses, the spot market for thermal coal has remained relatively steady over the past months. There have been some signs of an improvement in the hard coking coal markets in the US east coast as well. The volatility seen in financial markets has not been apparent in the coal markets, and as the third quarter draws to a close, the latest reports indicate that Colombian and US exports to Europe have been increasing amid the economic uncertainties.
Seasonal variations have impacted coal transport inland along the Rhine from Rotterdam, but port operators report that coal availability on the pads has been generally stable. As a consequence of the more positive results being seen so far in Europe this year, some market players now appear to be more anxious about a delayed impact and feel that coal demand could fall sharply during the winter. This seems unlikely at this stage, and one particular event suggested that Germany will be using more coal this winter.
This was following the shutdowns of nuclear capacity in the wake of the Japanese earthquake earlier in 2011. It has been noted, however, that purchases of additional tonnage in preparation for the next few winters are believed to have been made during H1 and this could be one reason why some market players feel there could be a fall in coal purchasing in the coming months, at least in Germany. Inflationary pressures are worrying some in Europe, and industrial activity is being closely watched by coal consumers and suppliers.
In the United Kingdom in May, Glencore listed on the London Stock Exchange, entering the FTSE 100 index immediately.The share price was, however, rather flat at around 525p during the first few days’ trading. Since then the company’s IPO has launched the company into the limelight, with much media attention on the relatively little-known company outside the commodities world before that. Key personnel have also been scrutinized and the company’s historical links have been of interest, and the financial downturn since the IPO has sent Glencore’s share price down significantly.
Among the European consumers, coal deliveries from Colombia have been firmer this year so far. In July, Denmark’s DONG Energy took two cargoes at Ensted amounting to 164kt.
The supplier is understood to be Cerrejon Coal. Drummond was reported to have supplied 321kt of thermal coal to France in July, landing four 80kt cargoes at Le Havre and Dunkirk. The ARA (Antwerp–Rotterdam–Amsterdam) ports received numerous cargoes of Colombian thermal coal amounting to some 1.589mt (million tonnes) in July, with Cerrejon and Drummond dominating the trade. Consumers and buyers of these cargoes included Evonik Trading, EON Trading,Vattenfall Energy Trading, and Enerco. Ireland’s Electricity Supply Board received two 79kt cargoes of Cerrejon coal at Moneypoint in July, and the Italians also took 71kt at Puerto Torres that month. Portugal’s EdP received two 79kt thermal coal cargoes at Sines from Cerrejon Coal in July, while Drummond shipped two 81kt cargoes to Spain. Ireland’s Lissan Coal Co was noted receiving 76kt of thermal coal from Colombianos del Cerrejon at Gijon. Further east, the Turkish buyers have been active as well, with Cerrejon shipping some 482kt of thermal coal to Iskenderun and Zonguldak for Eren Enerji, Evonik Trading, and Rheinbraun Brennstoff. Swansea Trading received 9.5kt of metallurgical coke from Carboexco at Iskenderun in July. In the coking coal market, Polski Koks received a 37kt cargo of material from Carbones Suramericanos at Poland’s Gdynia port during that month. The United Kingdom alone received an impressive 791kt of Colombian coal at UK ports and the ARA ports in July, with the suppliers listed as Colombia Natural Resources, Colombianos del Cerrejon, Drummond, and Prodeco. The European market accounted for 58% of all Colombian coal exports in July which were recorded as 6.676mt of thermal coal and 220kt of coking coal and metallurgical coke. The European market accounted for 50% of all US coking coal exports in the first half of 2011, with 31.763mt recorded in total
giving some 16mt to the Europeans. Three million tonnes was shipped to the ARA ports, while 2.1mt went to Italy. The Ukraine took 1.752mt given its interest in US coking coal production in recent years. The United
Kingdom took 1.258mt of US coking coal in H1 and Turkey took 1.171mt. Belgium imported 772kt of US coking coal in the first six months of this year, while Germany, France, Poland, and Spain took 759kt, 696kt, 688kt, and 633kt respectively. Other European countries also took significant tonnage of US coking coal, and these include Romania with 627kt, Croatia (568kt), Slovenia (289kt),Austria (219kt), Ireland (136kt), Sweden (136kt), Finland (134kt), Slovakia (115kt), Latvia (108kt), Portugal (93kt), Norway (43kt), Hungary (26kt), and Iceland (21kt).
In recent coking coal market activity in the North Atlantic market, the spot price of hard coking coal at Hampton Roads has firmed at the time of writing, with about US$3/t FOB (free on board) being added onto the previous week’s prices. Low-vol material is reported to be around US$291.50/t FOB while high vol product is over US$278.00/t now. Business remains thin, but there are more positive signs than there were in Australia where coking coal spot markets have been lacklustre.
US thermal coal has also been sought after by the European consumers and traders this year, with the main players being The Netherlands with 1.915mt imported in the first half, and the United Kingdom taking 1.362mt up to 30 June. Germany had imported 1.204mt at that stage, and France had received 1.133mt. Although at lower levels of imports, other European countries have also recorded significant tonnages of US thermal coal for the six months to 30 June. Belgium took 452kt, Italy imported 415kt, and Turkey took 351kt. Portuguese buyers received 289kt and their Spanish counterparts imported 199kt. Buying was also seen from the Adriatic to the Baltic, with Croatia taking 134kt and Latvia importing 105kt. Finland imported 74kt, Poland 61kt, and Sweden took 69kt. Irish consumers booked 83kt and the Danes received 77kt. Swiss players recorded 69kt on their books, and the Ukraine took a cargo of 64kt. Of the 13.85mt of thermal coal shipped by the USA in the first half of 2011, some 68% was imported by the Europeans indicating about 9.418mt.
In thermal coal markets at the time of writing, in Germany traders are understood to have been looking at US thermal coal availability in the past few days for two German power stations. Deliveries would be required for possible increased demand expected this winter. A utility buyer is reported to have been seeking a cargo of US material for delivery in early October. A target price of around US$127.50/t CIF (cost, insurance, freight) basis 6,000 kcal/kg NAR has been rumoured. In Turkey, traders have been making new enquiries for imports for industrial buyers during September. Russian material for prompt loading in the Black Sea was reported to be priced at about US$120.00/t FOB basis 6,000 kcal/kg NAR (net as received).
In mid-July, thermal coal spot markets saw a slight softening in the Atlantic market, but with more trades being reported than earlier in the month. Demand for deliveries in August and September picked up, while the European buyers appeared to have that month’s requirements already fulfilled. There had been reports of higher sulphur US thermal coal being offered in the European market in early July, with those buyers able to burn the material indicating a sulphur-related price discount of up to 20% to the standard export quality product available in the international market. UK utility buyers were in the spot market seeking around 150kt of thermal coal as prices looked more attractive during the northern summer. There was a view at
the time that there could even be some surplus coal available in the ARA ports as Dutch coal demand temporarily eased due to an unforeseen shutdown at one of its coal-fired power stations in July.
As midsummer approached, the spot price of Russian thermal coal in the European market was reported to be firming due to rising rail costs, and restrictions to supply on rail. Sellers had been reported asking as much as US$122/t FOB basis 6,000 kcal/kg NAR but no deals had been reported at that level.The European buyers were looking elsewhere for lower delivered price offers at the time, and Turkish interest also appeared to have eased from the earlier flurry of deals being reported in the Black Sea. Several cargoes of thermal coal were reported to have been sold to the Turkish market in June. Prompt cargoes were rumoured to have been sold for about US$115/t FOB Yuzhny basis 6,700 kcal/kg GAD (gross air dried). Some earlier deals were believed to have achieved closer to US$120/t FOB and the cement sector in Turkey had also been taking Russian material at Black Sea ports. Croatia’s Plomin was back in the market in May, seeking 8x65kt cargoes of thermal coal for delivery during August 2011 to January 2012. Specifications for the power station include sulphur content of 1.4% (max).
At the beginning of summer in Germany, lower than normal rainfall in much of the country as well as other parts of Europe had reduced the water level in the Rhine over the previous couple of months. Freight rates for barging had risen substantially as some operators were unable to load more than 50% capacity. The higher costs and lower deliveries had impacted power generators further up river, with some temporary shutdowns being reported at that time.
In the aftermath of the Japanese earthquake in March, US traders were reported to have been gathering intelligence in the north European market during the following months, with a particular interest in competing Russian thermal coals shipped from the Baltic ports. Interest in the US material was believed to be continuing in Germany as coal demand there was understood to be firm, particularly for winter generation. Most of the German interest, however, had been for coal with a sulphur content of up to 1.3% which had precluded some of the US higher sulphur coal sellers. In early May, Stadtwerke Hannover was reported to be in the market seeking 195kt of coal in 3x65kt cargoes for delivery in Q4 2011, Q4 2012, and Q4 2013. As mentioned previously, coal demand for winter generation had picked up in Germany due to the loss of nuclear generating capacity in the wake of the Japanese earthquake. At the time, market rumours suggested another power generator had purchased around 1mt of coal in the preceding weeks for delivery in 2012 and 2013.
Increased European activity in the thermal coal spot market was noted in late April, but not necessarily for prompt delivery.
Indeed, many cargoes had been bought and were being sought for autumn delivery in the coming couple of years. Germany now looks set to be a market of interest to thermal coal shippers during the coming years as the fuel will be needed to fill the generating gap made by the shutdown of the older nuclear power stations. US shippers were believed to be also offering Colombian material in the international spot market, as US domestic demand was reported to have eased at that time, and a trial cargo of Powder River Basin coal was rumoured to have been shipped to a European customer in April.
On the production side, in Russia, Mechel is reported to have increased production of coking coal in H1 2011 to reach 4.5mt. This was an increase of about 28% compared to the same period last year, and the company reported strong demand for its products. The country has produced 183.3mt of coal in total during the seven months to 31 July 2011 which is an increase of 1.2% compared to the same period last year. Total coking coal output, however, is reported to have decreased by 7% in the period compared to last year, at 35.9mt. Mechel Mining is understood to be moving forward with its plans for an IPO (initial public offering) after some delays during the past three years. Current rumours suggest the company could raise US$5bn to be invested in Russian port development. Meanwhile, Russian electricity company RAO UES was considering a joint venture with EdF Trading which would create a new trading operation in Russian coal. The new entity could seek to acquire coal mines in Russia as a part of its strategy.
Of concern to international market players, however, there was news that the Russian government may impose an export tax on SS coal in order to conserve the material for domestic use.
In company news, Swiss-based Xstrata has reported an increase in operating profit of 31% during the first half of 2011 compared to the same period last year to reach US$4.25bn. The average price of coking coal was reported to be US$259.60/t FOB which was an increase of 34% compared with H1 2010. The average price of thermal coal was US$104.00/t FOB which was 30% higher than the price in H1 2010. In the United Kingdom, Rio Tinto has announced an increase
in earnings of US$1.63bn to reach US$7.13bn during the first half of this year. This was an increase of 29.6% across its global operations, despite severe disruption to some coal operations in Australia during the wet season of 2010/11. Production of hard coking coal in Queensland was 20% lower than in the same period last year, as the mines recovered from the impact of cyclones and severe flooding.
Tata Steel is expected to close a 1mtpa (million tonnes per annum) blast furnace and rolling mill at its facility in Scunthorpe in the United Kingdom. An estimated 1,500 jobs could be lost in this restructuring of Tata’s long products division in that country.
In Italy in July, the market heard that Enel is likely to gain approval to convert its Rossano Calabro power station to coal- firing following amendments to energy laws in that country. Demand for imported coal looks set to remain firm as coal-fired capacity increases in the next few years, with a new power station possibly being built in Calabria. Meanwhile, in the Netherlands, a fire at the Hemweg 8 power station in Amsterdam caused the plant to be shut down for repairs. The plant is operated by Nuon which is owned by Vattenfall. Around 150kt of coal demand is estimated to have been lost due to the incident.
Following the decision to cease power generation at some nuclear plants in Germany after the Japanese earthquake, the German government is indicating the need to construct additional generating capacity based on fossil fuels including coal. If such a policy gains acceptance, the market for imported coal in Germany could increase in the coming decade.
In France, E.ON is to close five coal-fired power stations by 2013. European emissions regulations are attributed to the move which has impacted coal-fired power stations in other countries including the United Kingdom, but E.ON also appears to have decided two of its French plants are uncompetitive.
In Turkey, demand for thermal coal is set to increase by more than 1mtpa following commissioning of the first 600MW unit at Icdas’s Cannakkale power station in early 2012. The steel maker is expected to commission a second 600MW unit about a year later, boosting coal demand further still.
Glencore reported turnover of US$41.5bn for Q1 2011 which was an increase of some 39% compared to the same period last year. A profit of US$1.2bn was reported for the March quarter which was an increase of US$368m compared with the same period in 2010. Meanwhile, speculation of a merger between Glencore and Xstrata has been played down, but the market was watching out for any takeover plans Glencore may have across the globe. Glencore has bid for Optimum Coal which valued the company at US$1.2bn, and at the time of writing a new unidentified bidder has appeared. Glencore has formed a consortium with Cyril Ramaphosa in the bid which would give Glencore an export allocation of 8.4mtpa.
Market players in the Americas have been trying to make sense of the European financial situation over the past few weeks, as well as the fiasco over US debt. Clearly, nobody can predict the future and there are mixed feelings about the way the markets will move in the coming six months or so. Historically, prices have tended to firm after a northern summer lull, and in the lead up to Coaltrans in October each year. Perhaps this will become apparent in the next few weeks.
The European market has shown signs of some volatility and uncertainty in recent years, and this may continue as market sentiment suggests most market players have no clear idea of an individual European country’s direction with regard to coal demand in the short term. It is the unexpected events that seem to change the dynamics such as the German nuclear situation this year.
In the longer term the international coal industry appears confident that Europe will be a major consumer of coal and producers have put operational policies in place to cater for that, having been tested during the economic crisis of 2008 and 2009. No doubt there will be much to discuss about the European coal market in another 12 months and in the coming years.