European Coal Prices Sustain 6-Month Highs, Pointing to Future Gains

European coal prices have demonstrated resilience in recent months, reaching six-month highs, and market experts suggest that this upward trend may continue. The coal market is currently in a state of flux, with competing factors like gas prices vying for influence, despite ample coal supply and subdued demand. As of the latest data, the front-month API 2 contract saw a slight decrease of USD 1.15 compared to the previous settlement, with a value of USD 139 per metric ton on Ice Futures. This movement followed a brief return to Friday's six-month high of USD 140.50 per metric ton.

One of the key drivers behind the optimistic outlook for coal prices is the presence of a "war risk premium" that appears to affect the entire energy sector. Concerns are emerging about potential disruptions in fuel supply due to escalating conflicts in the Middle East, particularly the rising tensions between Israel and the Palestinian militant group Hamas. Market participants are particularly focused on the possibility of interruptions in the flow of liquefied natural gas (LNG) and coal through the Suez Canal, a critical transit point.

According to a coal trader associated with a Swiss trading house, these price increases are occurring "against a backdrop of conflict in the Middle East and ongoing gas supply concerns in European energy markets." The ongoing turmoil in the region, coupled with uncertainties surrounding an unexplained leakage and outage on the Balticconnector pipeline, has fueled this cautious optimism.

Despite these factors, experts like Tom Hovik, Montel's head of technical analysis, anticipate that the front-month API 2 contract could gather further bullish momentum in the days to come. They suggest that the market may approach its next resistance level, estimated to be around USD 150.55 per metric ton, with this potential move occurring as early as this week.

However, the coal market's supply dynamics are also worth considering. Some experts believe that coal imports to Europe may experience a degree of relief as a result of low river levels, which are impeding the transportation of coal via inland barge shipments to German power plants. As one source from a large import terminal mentioned, "Currently, we have more requests for train loads, as customers have trouble getting enough tonnage in barges." Projections suggest that Northwest European thermal coal imports for November are expected to decrease by a marginal 0.1 million metric tonnes compared to the previous month's total, amounting to approximately 2.2 million metric tonnes.