Prices Drop on Low Summer Demand, Ukraine Gas Compromise

• July ARA trades at $73.50 a tonne
• Weather to be warmer than average for most of June
• Gas prices fall to 3.5 year lows on Russia, Ukraine gas compromise
• Ukraine gets gas supply extension after partial payment

European physical coal prices in July dropped on Monday as an outlook for mild weather entering the warm summer months pulled down the demand side while fears over a Russian gas cut to Ukraine eased and improved Europe's energy supply outlook.

Cargoes for July delivery to Amsterdam, Rotterdam and Antwerp (ARA) were trading at $73.50 a tonne, down $1.9 since Friday, according to the GLOBALcoal trading platform, and the contract is now over 40 percent below its last peak in the first quarter of 2011.

Traders said the price drops were a result of a warm weather outlook reducing demand while Europe's energy supplies improved following a compromise in the Russia-Ukraine gas dispute.

Russia's Gazprom gave Ukraine on Monday an extension into next week to resolve the gas price dispute, a day before Moscow was due to turn off the taps unless Kiev paid in advance.

"Gas prices have dropped close to 4-year lows because of the compromise between Russia and Ukraine, so that also forces coal prices lower. We've also seen oil drop back below $100 per barrel," said one coal trader.

"Adding to that, we're now entering the lowest demand period of the year so that's also pulling down prices," he added.

Meteorologists said they expected European temperatures to be warmer than average until at least the middle of the month.

(Reporting by Henning Gloystein, editing by David Evans)