Coal Prices Drop on Low Summer Demand, Healthy Supplies

European physical coal prices dropped along with natural gas on Tuesday as the region went into the lowest demand season of the year and supplies remained healthy.

Cargoes for delivery in August to Amsterdam, Rotterdam and Antwerp (ARA) traded at $71.80 a tonne on the globalCOAL trading platform, down $1 since Monday, while September contracts were down 15 cents to $73.55 a tonne.

"August is typically with the month that sees the lowest energy demand in Europe as most families go on holiday for some time during the month, leaving most schools, government buildings and offices underused," one coal trader said.

"As stocks are healthy following a mild winter and spring and there are also no major production outages from coal exporters, the market is oversupplied and still pulling down prices," he added.

In Europe's gas markets, the benchmark British contract for delivery during the upcoming winter 2014/2015 season fell below 57 pence per therm for the first time since the product began trading in 2011.

Natural gas is coal's main competing fuel for power generation in Europe, so cheaper gas prices typically also force down the coal market.

Indonesian Elections
In Australia, coal prices for delivery in August from its Newcastle terminal were also down, falling 35 cents to $70.40 a tonne largely on the back of healthy production.

Some uncertainty, and with it potential coal price volatility, remained around the July 9 elections in Indonesia, the world's biggest, albeit struggling, coal exporter.

"As the gap in the presidential election race between Jakarta Governor Joko "Jokowi" Widodo and ex-military General Prabowo Subianto narrows, investors are apprehensive as the 9 July poll approaches," insurance brokerage and risk consultancy Jardine Lloyd Thompson Group said on Tuesday in a research note.

"Simultaneously, the government must attract new foreign investors for both mining and infrastructure projects ... Regardless of the (election) outcome ... Indonesian economic policy will be changing and investors need to be ready," the company added.

(Reporting by Henning Gloystein, editing by David Evans)