With the US resorting to a quantitative easing of the economy, the liquidity scenario across the world seems to be improving raising hopes of rapid global economic recovery.
A report from the BofA Merrill Lynch Global Research noted that the thermal coal priced in the USD stands to benefit strongly in the macro backdrop of negative real interest rates. Coal is leveraged to emerging markets on the demand side as well as free-floating currencies on the producer side, the report noted.
On one hand, China and India are substantially building out their coal-fired power grid, requiring large amounts of coal. On the other hand, the world s largest coal exporters do not manage their currencies relative to the USD, unlike oil producers, but allow them to appreciate freely.
On top of that, a chain of physical bottlenecks is severely constraining supply growth. Coal and coal currencies are moving in the same direction FX can be an important driver of commodity prices, including coal.
About a year ago, we first made the point that freely floating and rising coal currencies could push steam coal prices higher in USD. So far this year, the currencies of most coal exporting countries have experienced phenomenal appreciation, the research firm noted, BofAML Global Research noted.
While South African and Australian coal prices have appreciated strongly in USD, they barely have in local coal currencies. There is a strong leading relationship between FX rates of coal producing countries and coal prices.
In other words, as these FX rates pull higher due to favorable interest rate differentials and ensuing capital flows, coal prices in Europe and South Africa will likely follow.
We see upside on near-dated API2 and API4 coal contracts Europe faces a myriad of supply issues at a time that the coal burn is starting to improve. China and India are both low in stocks and have ramped up coal imports but Pacific supply lags demand. Thus, they are now turning to South Africa again, the research report noted.
The Fed s announcement of another round of quantitative easing last week propelled commodity prices higher across the board. Driven by a falling trade-weighted dollar and record capital outflows to emerging markets, Brent crude oil prices have now broken through $88/bbl, the first time in six months.
We expect them to go above $90/bbl before the end of the year. Steam coal prices have also appreciated sharply, breaking through $105/mt and are currently trading at an 11-month high. Perhaps with the exception of US natural gas, the whole energy complex is benefiting from the expectation of a Fed engineered liquidity boom, noted the research report.
According to BofAML Global Research, the impact of further asset purchases is only starting to be felt across the commodity complex through a weaker USD. Once asset inflation translates into positive wealth effects and lower refinancing costs boost consumption, oil, coal and other commodity prices will start increasing in other currencies as well.
Steam coal could benefit from increased liquidity, thermal coal priced in USD stands to benefit strongly in the current macro backdrop of negative real interest rates.
Coal is both leveraged to emerging markets on the demand side and to free-floating currencies on the producer side.
Currencies can be an important driver of commodity prices, including coal.
On the fundamental side, EU coal demand is recovering. The European coal burn has started to pick up, especially in Germany, the UK and some Scandinavian countries.
Coal inventories held at utilities in France, Germany, Poland and the UK have started to normalise over the past couple of months.
If European power prices pick up due to higher oil prices and if clean dark spreads were to improve, the coal burn might well surprise to the upside this winter in Europe. Of course, we are only just witnessing some demand starting to re-appear, BofAML report noted.
In level terms, the coal burn is still extremely low.
Meanwhile, Europe is facing a myriad of coal supply issues. Secondly, the Russian coal market is tight right now, due to rail and production constraints and shipments to Europe are relatively low. Colombian coal exports have disappointed. Also, Europe is struggling to import from the United States at current prices.
China started ramping up imports from both Australia as well as South Africa late September in order to feed power demand. On preliminary numbers, China s imports from South Africa seem to have almost doubled from September to October.
A report from the BofA Merrill Lynch Global Research noted that the thermal coal priced in the USD stands to benefit strongly in the macro backdrop of negative real interest rates. Coal is leveraged to emerging markets on the demand side as well as free-floating currencies on the producer side, the report noted.
On one hand, China and India are substantially building out their coal-fired power grid, requiring large amounts of coal. On the other hand, the world s largest coal exporters do not manage their currencies relative to the USD, unlike oil producers, but allow them to appreciate freely.
On top of that, a chain of physical bottlenecks is severely constraining supply growth. Coal and coal currencies are moving in the same direction FX can be an important driver of commodity prices, including coal.
About a year ago, we first made the point that freely floating and rising coal currencies could push steam coal prices higher in USD. So far this year, the currencies of most coal exporting countries have experienced phenomenal appreciation, the research firm noted, BofAML Global Research noted.
While South African and Australian coal prices have appreciated strongly in USD, they barely have in local coal currencies. There is a strong leading relationship between FX rates of coal producing countries and coal prices.
In other words, as these FX rates pull higher due to favorable interest rate differentials and ensuing capital flows, coal prices in Europe and South Africa will likely follow.
We see upside on near-dated API2 and API4 coal contracts Europe faces a myriad of supply issues at a time that the coal burn is starting to improve. China and India are both low in stocks and have ramped up coal imports but Pacific supply lags demand. Thus, they are now turning to South Africa again, the research report noted.
The Fed s announcement of another round of quantitative easing last week propelled commodity prices higher across the board. Driven by a falling trade-weighted dollar and record capital outflows to emerging markets, Brent crude oil prices have now broken through $88/bbl, the first time in six months.
We expect them to go above $90/bbl before the end of the year. Steam coal prices have also appreciated sharply, breaking through $105/mt and are currently trading at an 11-month high. Perhaps with the exception of US natural gas, the whole energy complex is benefiting from the expectation of a Fed engineered liquidity boom, noted the research report.
According to BofAML Global Research, the impact of further asset purchases is only starting to be felt across the commodity complex through a weaker USD. Once asset inflation translates into positive wealth effects and lower refinancing costs boost consumption, oil, coal and other commodity prices will start increasing in other currencies as well.
Steam coal could benefit from increased liquidity, thermal coal priced in USD stands to benefit strongly in the current macro backdrop of negative real interest rates.
Coal is both leveraged to emerging markets on the demand side and to free-floating currencies on the producer side.
Currencies can be an important driver of commodity prices, including coal.
On the fundamental side, EU coal demand is recovering. The European coal burn has started to pick up, especially in Germany, the UK and some Scandinavian countries.
Coal inventories held at utilities in France, Germany, Poland and the UK have started to normalise over the past couple of months.
If European power prices pick up due to higher oil prices and if clean dark spreads were to improve, the coal burn might well surprise to the upside this winter in Europe. Of course, we are only just witnessing some demand starting to re-appear, BofAML report noted.
In level terms, the coal burn is still extremely low.
Meanwhile, Europe is facing a myriad of coal supply issues. Secondly, the Russian coal market is tight right now, due to rail and production constraints and shipments to Europe are relatively low. Colombian coal exports have disappointed. Also, Europe is struggling to import from the United States at current prices.
China started ramping up imports from both Australia as well as South Africa late September in order to feed power demand. On preliminary numbers, China s imports from South Africa seem to have almost doubled from September to October.
