Firm coal market supports European gas prices

The European coal market has showed good gains since the start of winter amid a supportive fundamental environment:

  • Coal stocks at the ARA terminals have entered Q1 close to 5 year lows following a strong drawdown in Q4-20
  • A strong TTF (pulled up by an incredible JKM rally) has seen gas prices at multiyear highs in the coal switching price range, supporting coal generation demand
  • A large rally in Pacific coal prices since the start of Q4 driven by shortages in major Asian markets has outstripped API2 strength, and sees less coal supply pointing at Europe
  • Supply disruptions remain in Colombia with the continued closure of Prodeco

Stronger coal & carbon prices (34 €/t) in 2021 are set to support TTF prices via increasing coal for gas plant switching levels in the power sector. As we move into a tighter fundamental global gas environment from 2021 switching is set to return to a key role in setting European gas prices.