Coal news and updates

Atlantic Financial Coal: Prompt CIF ARA swaps jump $1 on Drummond supply stop

Front-end European-delivered CIF ARA thermal coal swaps surged by more than $1 Wednesday as sources said the supply shortage following the shut-in of US miner Drummond's Colombian exports was providing support for the prompt paper market.

Platts assessed the front-month API2 February contract at $84.30/mt, $1.30 higher from Tuesday, and the front-quarter API2 Q2-14 at $81.30/mt, up $1 -- both at their highest levels this year.

Drummond's Colombian coal exports were suspended January 8 and the ban was made effective Monday due to the miner not having its direct-loading systems operational to comply with environmental regulations, which market sources believe will shut in as much as 5 million mt of thermal coal from the European market.

A London-based broker source said this had caused "a lot of hesitation" from participants who, despite the shortage of coal, had been reticent to bid swaps up strongly this week.

An investment bank trader said the uncertainty from market participants came from the question over whether Drummond would come to an agreement with the government which would allow it to ship coal through third-party ports.

He said that while this was increasingly seen as unlikely -- as most Colombian export terminals do not have the capacity to carry Drummond's tonnages -- the possibility was making traders take a step back from entering stronger bids.

"I ultimately do not see prompt prices rising much higher in the paper market, because if they continue to rise, US and Russian coal will start to price into Europe, which might block out any possible supply shortage from Colombia," he said.

SUPPLY CONCERNS FOCUSED ON FEBRUARY, MARCH

The bank trader said the strength in the Q2-14 contract during Wednesday's session may be short-lived as most of the supply concerns were focused on February and March.

However, he said there might be a possibility that Drummond would not load until after March, which could see some of the supply shorts spill into the second quarter.

Meanwhile, further down the curve, CIF ARA swaps contracts reported marginal gains, as sources continued to state that expectations for later in the year remained bearish once the Drummond situation was resolved.

Platts assessed the year-ahead API2 Cal-15 contract at $86.40/mt, 30 cents higher.

Nearby Richards Bay FOB coal derivatives continued to be supported Wednesday as implied freight (API2-API4) differentials came in due to Europe outperforming the South African paper market, sources said.

The front-month February implied freight spread rose 80 cents to minus $0.45/mt and the Q2-14 spread rose 5 cents to minus $0.45/mt.

The year-ahead Cal-15 differential jumped 15 cents to $3.05/mt.

Platts assessed the API4 February contract at $84.75/mt, 50 cents up from Tuesday; the API4 Q2-14 at $81.75/mt, 95 cents higher; and the Cal-15 up 15 cents to $83.35/mt.

Source: Platts