LONDON: European coal futures for 2014 delivery fell to a new 39-month low at $86.05 a tonne on Thursday, sounding a shriller alarm for producers as commodities prices posted big losses in view of renewed fears about global economic growth.
API2 coal futures for delivery in 2014 fell almost a dollar to trade at $86.05, after sliding through a technical support level at $86.60, heaping further pressure on high-cost, low margin coal producers.
The last time coal traded at $86, the world was slowly emerging from a deep economic downturn, and this time around, mining companies are cutting costs in order to stave off big production cuts.
Further signs that Chinese economic growth is cooling and the US Federal Reserve's plan to roll back its stimulus program prompted a $3 fall in Brent crude prices and across-the board selling in commodities markets on Thursday.
A fall in German power prices towards an eight-year low encouraged traders to sell coal futures, while a stronger dollar made the fuel appear less cheap in real terms for European buyers.
The baseload German power price for front-year delivery traded at 37.83 euros per megawatt hour, down 0.32 euro from Wednesday's close.
Weakness in the physical market also cast a pall over the trade in futures.
Coal delivered into ports in northwest Europe (DES ARA) in July settled at $71.55 a tonne on Wednesday, compared with Tuesday's settlement of $71.25.
Coal for front-month delivery in Europe has fallen around 20 percent since the start of the year due to abundant exports, easing summertime demand for coal and large-scale selling of physical coal by one utility.
The U.S government said on Wednesday that exports of coking and thermal coal hit a record 12.6 million tonnes in March, but this figure is unlikely to be matched this year because of weaker international prices and growing domestic demand for coal, said Lucas Pipes, a consultant with US-based bank Brean Capital.
"We are expecting exports to fall in the coming months, because international coal prices (for prompt physical coal) are around $10 less than domestic prices, which are themselves below break-even cost. High-cost producers will find it increasingly tough to survive," Pipes said.
South African coal from the port of Richard's Bay fell $1 in the July contract to $76.00.
But demand from India, a major buyer of South African thermal coal in the second quarter, could ease in the coming months as the country's Monsoon season makes the logistics of importing and transporting the fuel more difficult, Macquarie said in a report.
High stocks of the fuel in some power stations, a weakening rupee and the likelihood of higher hydro levels in the third quarter could also cool India's demand for South African coal, the bank added.
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