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El Nino weather pattern to depress coal prices

Coal prices are likely to remain depressed this summer as the expected return of the El Nino weather pattern improves coal mining output in the southern hemisphere but Europe's demand stays stagnant.

El Nino, characterised by unusually warm surface temperatures in the central and eastern tropical Pacific Ocean, has a significant impact on climate in many parts of the world and a warming influence on global temperatures.

Many weather forecasting models indicate that an El Nino pattern may develop around the middle of the year.

The last El Nino event was in 2009 to 2010, and since then the Pacific has either been in a cooler state, called La Nina, or neutral.

"El Nino means there will be fewer tropical and subtropical flooding disruptions in major coal-exporting countries like Australia and Colombia, which will improve their exports," a coal trader with a major merchant said.

"At the same time, the major consumption and import hubs in Asia (China, Japan and South Korea) and Europe (Germany and Britain) will enter the low-demand summer lull period, so I'd expect coal prices to drop further in the coming months."

Coal prices for import into Europe's ports of Amsterdam, Rotterdam and Antwerp, including from Colombia, are around $77 a tonne, and Australian coal cargoes, which mainly go to China, Japan and South Korea, are trading around $73 per tonne.

Industry data shows that Colombian coal could still be exported profitably at a price below $65 per tonne, while most Australian marginal costs are slightly below $70 per tonne.

"I wouldn't be surprised if physical coal prices drop into a range of $65-70 per tonne, depending on the region," a coal trader with a major miner said.

LOW DEMAND

Demand for coal is expected to remain stagnant this summer, especially in Europe, where an unusually mild winter and start to spring have left coal stocks full.

"The weather may help supply but it shouldn't change demand much. Prices shouldn't slide much further as we are already consuming a lot of coal in Europe and there is limited room to consume much more," said Paolo Coghe, European power, coal and carbon analyst at Societe Generale.

"Demand is uninspiring. As renewables keep marching forward and nuclear is fairly reliable, not only will we need fewer gas plants but even some coal plants won't be needed as much."

Across Europe, utilities have been surprised by a surge in renewable energy sources, most notably solar and wind, which have replaced power from many gas and coal-fired plants and led to a collapse in wholesale electricity prices.

Most of Europe is also expected to have above-normal temperatures in early summer, according to Weather Services International, which would further dampen demand for coal.

Source: Reuters