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Euro Coal: Prices dip as low demand combines with healthy supply

* July ARA prices fall to $70 per tonne

* Asian prices also below $70 per tonne

* But Indian supply squeeze expected to lift Asian prices

European physical coal prices dipped on Tuesday as low demand was met by healthy supplies, while Asian prices received some support as Indian utilities suffered a coal shortage and a miner in Indonesia declared force majeure.

European physical coal prices for delivery within this month fell to $70 per tonne on Tuesday, down $0.55 since their last settlement and close to five-year lows. Prices for delivery in August were down almost a dollar to $70.95 per tonne.

Traders said the falling prices resulted from a combination of week demand in the summer season, falling consumption due to stagnant population growth, rising fuel competition from renewable energy sources and improving energy efficiency as well as healthy supplies.

"Coal demand in Europe is going down for all sorts of reasons: It's warm at the moment so nobody heats and people use less warm water. Generally, Europe's renewables are eating into coal for power generation, and the overall demand is also falling slightly, so that's also bearish," one coal trader with a utility said.

"At the same time, coal stocks are high following a mild winter and spring, and the import outlook in the Atlantic basin looks pretty healthy, so that's adding further downward pressure to prices," he added.

Analysts said the low prices were forcing many producers to operate at a loss and that more mines would have to reduce production or close down before prices recover significantly.

"A growing share of the sea-borne supply community is operating at negative margins to cash cost," Morgan Stanley said this week in a research note.

"While some of the top global miners have either halted operations or slowed expansion plans, current price dynamics suggest we need to see more to assist in a price recovery, including a slowdown in U.S. exports," the U.S. bank added.

ASIAN SUPPLY SQUEEZE?

In Asia, the region with the world's biggest growth in coal consumption, prices have also fallen for most of the year as Australian output has hit record highs and demand growth in China has slowed.

As a result, Australian physical coal prices dipped below $70 a tonne, also close to five-year lows.

But traders said the Asia/Pacific market could tighten in the coming days and weeks as Indian utilities run out of coal stocks, forcing them to order imports from South Africa.

Nearly half of India's coal-fired power stations only have enough stocks to last a week, forcing them to order imports, as the country struggles to connect millions to the grid and wrestles with a growing coal import bill.

Source: Reuters