US Non-Coking Coal: Atlantic demand falls flat on lower gas prices in Europe

Atlantic thermal coal markets continue to witness relatively flat overall demand for the last several days, as cheaper prices of European natural gas is rendering coal unfavorable for power generation.

Global gas prices pressurized by LNG oversupply

A surge in production of liquefied natural gas (LNG) from new liquefaction plants around the world coupled with slowing demand growth in Northeast Asia, notably China, has driven a large influx of imports into Europe, in turn pushing down natural gas prices in the European region.

The Dutch TTF month-ahead gas price – a benchmark for European gas and LNG prices – has almost halved in the first half of the year to 11.35 euros per megawatt hour, which is the equivalent of 3.75 dollars per million British thermal units (mmBtu), per Reuters data.

Thus, European gas prices have fallen sharply since the start of the year on robust supply and warm weather, with the TTF day-ahead price falling as low as EUR 9.375/MWh on June 25, compared with almost EUR 30/MWh in late September 2018.

Furthermore, persistent weakness in global seaborne coal markets is keeping the near-term outlook negative.

In Asia, Japanese buyers have locked in supplies with long-term contracts, Chinese utilities are buying more local coal and generating more power from gas and water, and South Korea has raised taxes on coal imports. In Europe, too, sluggish industrial output had been curtailing power consumption, while LNG output has soared.

As global demand for the commodity softens, coalminers exporting out of the US are struggling to compete with mining giants from the traditional originating countries, viz. Australia, Indonesia and South Africa; chiefly because of logistical challenges to ship their coal to key emerging markets in Asia.

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N.B.: All prices are in USD/MT

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