Coal Set for Biggest Weekly Gain in 7 Months on European Cold

Benchmark European coal derivatives rose, heading for the biggest weekly gain in more than seven months and this year’s highest close as lower-than-usual temperatures in Europe pushed up heating demand.

Berlin will be as cold as minus 10 degrees Celsius (14 degrees Fahrenheit) tomorrow, compared with a December mean of minus 0.4 to 4.4 degrees from 1971 to 2000, information on the World Meteorological Organization’s website shows. The U.K.’s earliest widespread snowfall since 1993 has disrupted road and rail traffic, with icy weather likely to last until at least Dec. 8, according to private forecaster British Weather Services.

“Some extremely cold weather in Europe has fired up energy markets in Europe, bolstered demand and” pushed up prices, Sydney-based Citigroup Global Markets analysts Daniel Hynes and Alan Heap said in a report today. “With forecasts indicating the cold snap to continue into the foreseeable future and China on the verge of restocking ahead of the New Year, we see potential further upside.”

Coal for delivery to Amsterdam, Rotterdam or Antwerp with settlement next year rose $1.15, or 1 percent, to $111.75 a metric ton at 11:35 a.m. in London. A close at that level would be the highest for 2010 and a 4.6 percent weekly gain, the biggest since April 23. It gained 5.8 percent in November.

Force Majeure

The data are drawn from information supplied by ICAP Plc, GFI Group Inc., Spectron Group Ltd., Credit Suisse Group AG, IHS McCloskey, Bloomberg and Tradition Financial Services.

Unseasonal rains in Australia forced Macarthur Coal Ltd., Aquila Resources Ltd. and Vale SA to declare force majeure on deliveries. Xstrata Plc, the largest exporter of coal for power plants, shut part of its rail system and said it would use stockpiles to supply customers.

Reduced Australian supplies may force Asian buyers further afield for coal, potentially increasing competition for European customers and pushing prices higher. Force majeure is a legal clause invoked by companies when they are unable to meet obligations because of circumstances beyond their control.

Profit from running coal-fired power plants for next month, the so-called clean-dark spread, is about 4.46 euros ($5.91) a megawatt-hour, compared with 33 euro cents from burning natural gas, Bloomberg data showed. The calculation uses electricity prices in Germany and takes emissions costs into account.

To contact the reporter on this story: Alistair Holloway in London at aholloway1@bloomberg.net.

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net.

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