http://www.reuters.com/article/2012/06/25/markets-coal-physical-i...

http://www.reuters.com/article/2012/06/25/markets-coal-physical-idUSL6E8HPA4U20120625

Euro Coal-Stable, eyes on output cuts
Mon Jun 25, 2012 12:05pm EDT

* Brent dips below $90, coal swaps follow

* Traders stop speculative shipments to China

(Reuters) - Prompt physical coal prices were unchanged on Monday although swaps slipped by around 50 U.S. cents in line with oil's fall but no fresh trades were reported and few bids or offers were seen.

Brent crude briefly fell below $90 on Monday with concerns abut faltering global growth and Europe's debt crisis hitting investor confidence.

When coal trading activity is especially thin, the market tends to drift with oil until it finds its own direction.

The short-term outlook remains fairly bearish despite an increase in Indian prompt buying and trader short-covering.

Traders waited to see who will cut output, when and by how much, at the same time as watching for signs of robust Chinese demand for the summer and beyond.

Until sufficient output cuts are made and U.S., Colombian and Russian cargoes in traders' hands are absorbed, the market will be vulnerable and could drift back to recent two-year lows, they said.

Production cuts have begun to be made in the U.S., Russia and Indonesia but could take a few months to be felt in stronger prices which in turn would reduce a repeat of the widespread price re-negotiation by Chinese buyers which spooked the market last month.

Signals out of China were confusing, traders and suppliers said, because summer power shortages were again forecast at the same time as China's economic growth has slowed and some analysts are forecasting record imports.

"There is significant stress in the coal market around South China with suppliers either seeing an outright default or having to re-negotiate on price, credit terms and delivery schedules," Barclays Capital said in a research note on Monday.

"The big conundrum for the coal market, though, is how long will these high port inventories of coal and ore persist and continue to pressurise traders, and what this will mean for prices," the BarCap note said.

The temptation for traders to ship unsold cargoes to China, speculatively, has been thoroughly squashed for the time being by the defaults, deferrals and "price majeures" or forced price re-negotiations because the risk is seen as too high.

Some tentative optimism is emerging that prices might start to recover in the second half but not enough to encourage struggling producers to maintain output levels.

"Everybody is again thinking the same thing - that it looked very bearish because of China and now it's not so bad," one European trader said.

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GRAPHIC: DES ARA physical coal prices: here

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PRICES

A July loading South African cargo was bid at $85.00, unchanged.

An August South African cargo was bid at $88.00, also unchanged. An August DES ARA cargo was bid at $87.70 and offered at $90.50, unchanged. (Reporting by Jacqueline Cowhig, editing by William Hardy)