August 2, 2018 / 6:43 AM / 2 months ago

Phew! Asia, Europe heatwave pushes Australia coal prices to six-year high

SINGAPORE (Reuters) - Australian thermal coal prices have hit six-year highs as a heatwave across the Northern Hemisphere has triggered a spike in demand for coal-fired power to help keep air conditioners cranking out cool blasts.

Spot thermal coal cargo prices from Australia’s Newcastle terminal GCLNWCPFBMc1 last settled at $121.75 per tonne, their highest since February 2012 and up by a third from their 2018 low, set in April.

GRAPHIC: Australian Newcastle thermal coal price reut.rs/2n2JTn9

“Extreme heat in Asia and Europe is pushing power demand for industrial and also residential cooling above what’s normal for this time of the year,” said one utility trader, declining to be named as he was not authorised to talk about commercial matters.

“Coal has reacted stronger than natural gas because more spare coal capacity has been activated,” he said.

Temperatures in key coal-consuming regions of North Asia and Europe hit records in July and the heat that has continued into August is set to persist, meteorological services said.

GRAPHIC: Heatwave reut.rs/2Klf1aG

Weather analyst Ed Whalen said “widespread warmth between 1-4 degrees Celsius above normal was observed across much of South Central, East, and Northeast China over the past seven days”. Hot weather would this week “dominate most of China once again,” he added.

In Japan, the unusual heatwave last week pushed temperatures in Tokyo above 41 degrees Celsius.

Beyond maximising coal-burning, Japanese utilities have cranked up old oil-fired power stations to cope with the spike in power demand, which has also sent the country’s wholesale electricity prices to record highs.

Extreme heat has also gripped large parts of Europe, with temperatures in Spain and Portugal exceeding 40 degrees Celsius and even Scandinavia seeing temperatures of more than 30 degrees.

The hot weather has also pushed up river temperatures across the region, forcing several nuclear power stations that use the waters for reactor cooling to reduce output.

European utilities, especially in Germany, have turned to coal-fired power stations to fill some of that gap, generation data in Thomson Reuters Eikon showed.

GRAPHIC: Germany coal & gas power output (GWh) reut.rs/2n5kvgS

Germany and Europe are not major buyers of Australian coal, but their increased demand is still being felt as a ripple effect amid a globally tighter coal market, traders said.

Overall, thermal coal prices have this year outperformed other fossil fuels like crude oil LCOc1 and liquefied natural gas (LNG), as the strong demand comes amid stagnant output while availability in oil and gas has been rising.

GRAPHIC: Coal prices outperform oil and gas in 2018 reut.rs/2O3ym2m

CAN IT LAST?

With the coal price boom virtually uninterrupted since April, some in the industry are asking how long the rally can continue.

Traders said falling domestic coal prices in China already pointed to lower buying interest from the world’s biggest coal consumer.

“As we get into the shoulder season, we should see some of the summer demand wane as cooler temperatures prevail and we move out of the peak summer demand season,” said Pat Markey, Managing Director of commodity consultancy Sierra Vista Resources.

“Given the weakness of the yuan relative to the U.S.-dollar, this has reduced the purchasing power of consumers in China to a certain extent as well,” he added.

The yuan has fallen about 8 percent against the dollar since the start of the second quarter CNYUSD=R as concerns over an escalating trade dispute with the United States, the top buyer of Chinese products, has weighed on the Chinese currency and its stock markets.

Reporting by Henning Gloystein; Editing by Kenneth Maxwell and Christian Schmollinger

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