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Europe Coal Loses to South Africa on Renewables: Energy Markets

Europe Coal Loses to South Africa on Renewables
Coal in northwest Europe cost $3.55 a metric ton less than supplies from South Africa’s Richards Bay yesterday, the widest discount for next-month prices since May 5, 2010, according to IHS McCloskey data. Photographer: Andrey Rudakov/Bloomberg

Germany’s biggest program of solar-and wind-power production has driven European coal prices below South Africa’s for the first time in 10 months.

Coal in northwest Europe cost $3.55 a metric ton less than supplies from South Africa’s Richards Bay yesterday, the widest discount for next-month prices since May 5, 2010, according to IHS McCloskey data. The difference is likely to keep increasing as European demand weakens and Asia boosts imports from South Africa, according to Barclays Plc.

“Producers are asking themselves if this is a seismic shift, and I think this move probably is sustainable,” said Bevan Jones, a general manager at London Commodity Brokers Ltd. who has traded raw materials for more than 15 years at companies including Anglo American Plc, Rand Merchant Bank and Global Coal Ltd. “Europe remains well supplied by the U.S., Colombia and Russia, while demand is on its weak side. Meanwhile, demand is consistent in Asia,” he said by phone from Johannesburg Feb. 3.

Coal prices in Europe have fallen 7.5 percent this year as nations increase the amount of energy they get from alternative sources. Germany, the continent’s biggest power market, installed a record 3,000 megawatts of new solar panels in December, the Bonn-based Bundesnetzagentur, the network regulator, said. Coal stockpiles at the biggest storage site in the Netherlands are 6.7 percent above year-ago levels, according to Europees Massagoed-Overslagbedrijf BV, which operates the terminal.

European Contract Falls

Coal for next-month delivery to Europe’s Antwerp-Rotterdam-Amsterdam hub declined to $101 a ton yesterday, the lowest since October 2010, according to data from Petersfield, England-based McCloskey. Richards Bay supplies were little changed for the year at $104.55 a ton. European prices, which include freight costs, have averaged $8.57 a ton more than South Africa’s since January 2008, the data show.

Output from German wind turbines reached a record 8 terawatt-hours in December, the BDEW utility group said Jan. 11. The country plans to get at least 35 percent of its electricity from renewables by 2020, compared with 20 percent last year. A terawatt-hour is equal to about 10 percent of annual power output at RWE AG’s Emsland nuclear reactor in Germany. A thousand megawatts can supply about 2 million European homes.

Germany’s power demand fell about 0.5 percent to 607 terawatt-hours last year, with electricity production dropping by 2.5 percent to 612 terawatt-hours, according to the BDEW.

Spain’s solar output rose 46 percent last year, and wind met a record 60 percent of the country’s power demand on Nov. 6, according to Red Electrica Corp. SA, the country’s grid operator.

Warm Winter

“Demand for coal is fairly low at the moment,” said Hugo du Mez, a business developer for dry-bulk shipments at Port of Rotterdam Authority. A warmer-than-average winter coupled with rising solar and wind output in Germany are keeping stocks high, he said by phone on Jan. 30.

EMO, which operates the biggest dry bulk terminal in Europe, said its coal inventories in Rotterdam were at 3.2 million metric tons on Feb. 6.

Germany’s imports will fall by as much as 2 million tons this year to about 45 million, Erich Schmitz, managing director of the country’s Coal Importers Association, said Jan. 31 by phone from Hamburg. The nation imported 46 million to 47 million tons in 2011, less than the association’s August forecast for 49 million tons, he said.

China’s Coal Influence

“European consumers are likely to have very limited appetite for prompt-market coal imports, given the ample stockpiles built over November and December,” Miswin Mahesh, an analyst at Barclays in London, said by phone Jan. 30.

China, which uses almost half of the world’s coal, has more influence than ever over markets of the fuel, the International Energy Agency said on Nov. 9. Marginal variations between its coal production and demand, both of which are “very large,” will determine imports and affect international markets, the Paris-based agency said in its World Energy Outlook.

South African prices are at the cheapest in 20 months relative to those in Australia, the world’s largest exporter of the fuel, boosting the appeal of Richards Bay supplies for Asian buyers such as China.

The price discount for coal at Richards Bay versus Australia’s main export terminal at Newcastle, 98 miles (158 kilometers) north of Sydney, widened to $13.23 a ton in the week to Feb. 3, according to McCloskey data.

“More expensive Australian coal prices from tighter supplies combined with cheaper freight rates have encouraged Asia-Pacific buyers to look further away for alternative sources,” Natalie Robertson, a commodity strategist at Australia and New Zealand Banking Group Ltd., said on Feb. 1 by e-mail from Melbourne. “Richards Bay appears to be a beneficiary of these conditions.”

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