Coal Prices Seesaw in Global Market Turmoil

Global markets in turmoil over slowing economic growth.

Thermal coal markets have gone through a volatile patch, pulled up and down by global markets as well as regional demand and supply swings, but the overall outlook is for coal to remain weak as high output clashes with falling consumption.

Coal and other commodities have been swept up in a broad selloff across financial markets on concerns of sluggish global growth due to a sharp slowdown in China. While there was some respite after Beijing intervened to help prop up their markets, the relief was short-lived.

All physical coal markets have weakened this year, with Australian coal down 1.7 percent since January, South African cargoes 15.5 percent down and European coal down 16.5 percent.

"Manufacturing is on a slide across Asia ... and in some places at a pretty rapid clip," HSBC said on Wednesday.

A survey showed China's manufacturing sector shrank at its fastest pace in at least three years last month.

Coal prices have also been moved by changes in regional supply and demand.

The relatively strong Australian coal market is largely a result of a price jump since late August, which traders put down to production cuts.

Coal for prompt delivery from Australia's Newcastle terminal last settled at $60.40 per tonne, up almost 7 percent since late August when prices dropped to a 2015 low.

Analysts, however, expect prices to fall again.

"We forecast Newcastle thermal coal prices to average to $57/mt in 2015 and to $52 in 2016. Stocks are high and Chinese demand is weak, and recent production cuts announced are insufficient to balance the market," Bank of America Merrill Lynch said. Newcastle's 2015 average price has been $63.5.

In Europe, prices for cargoes into Amsterdam, Rotterdam or Antwerp have dropped over 3.5 percent since late August despite an equal drop in output from a key supplier, Colombia, in the first half of the year.

South African output is also struggling, largely due to power outages.

But weak European demand is outweighing lower supplies.

"This has been a pretty warm summer across Europe so power demand, and by extension coal consumption, is pretty low," one trader said and added that high renewable output from solar and wind had also eaten into coal usage.

A utility trader said: "It's sunny, breezy and warm, so coal consumption is low and our stocks high, so we've reduced out forward orders."

Reporting by Henning Gloystein