LONDON: Coal prices continued November's downward trend on Tuesday as cheaper oil weighed, but traders said that the market could receive support around current levels as the drops had pulled prices close to marginal costs for miners.
Physical coal for destination into Europe's main import terminals at Amsterdam, Rotterdam and Antwerp (DES ARA) in December was offered at $83.50 a tonne on globalCOAL's trading platform on Tuesday afternoon, but traders said buyers would unlikely accept offers above $83.
"We settled at $83.10 a tonne yesterday, and with oil now close to $105 a barrel, I'd be surprised to see a taker above $83 today," one trader said.
Front-month Brent crude oil prices were trading at $105.74 a barrel at 1600 GMT, down from almost $110 a barrel at the beginning of the month.
South African cargoes from the Richards Bay terminal saw bids of $80 per tonne one Tuesday, almost $1.5 lower than Monday's settlement price of $81.40 a tonne.
Beyond a weaker oil market, traders said the main reason for the coal price drop was that a trading house had largely closed major long positions that had been buoying prices of South African and European physical coal since September.
SUPPORT
Despite the recent drops, traders said that physical coal prices would likely receive support around current levels as many miners were selling coal close to their production costs.
"Unless local currencies such as Colombia's peso or South Africa's rand drop much further against the dollar, making it cheaper for miners to export into the dollar-denominated coal market, many producers will not accept much lower prices.
I think we should see some support close to current levels for ARA and South African cargoes," one coal analyst said.
"There could even be some space on the upside as Europe's stock levels are quite low and I think utilities will have to buy fresh cargoes before the end of the year," he added.
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