Coal prices tumble as market sees correction
Coal prices have fallen sharply in what traders said was a long-awaited correction.
Analysts said the benchmark European price dropped from about US$225 per tonne to below US$200, which in turn dragged down United States prices as much as US$20.
London's API2 coal swaps plunged as much as US$24, a fall unprecedented in the past five years of over-the-counter swaps trading.
The market experienced a violent correction with swaps falling sharply minute by minute, traders said.
The correction was long overdue because prices had risen sharply and steadily for the past few weeks, traders said.
Prices stabilised about US$2 below physical levels at the close in London.
The Dow Jones coal index was down 13.83 per cent in New York on Wednesday afternoon.
'We have been waiting for a correction for months,' Calyon Securities coal industry analyst Gordon Howald said, adding that some US coal firm stocks had risen between 40 per cent and 60 per cent since May 1.
'It's a correction and not a big deal,' he said. 'Nothing has changed in the global coal picture.'
Mr Howald said what prompted Wednesday's correction was the refusal by Asian utilities to pay US$220 per tonne for steam coal, which was selling for US$170 last week.
The price for metallurgical coal, which is crucial for making steel, has also surged this year on burgeoning demand while flooding in Australia cut supplies.
Jeremy Sussman, a coal industry analyst at Natixis Bleichroeder, said US coal producers had been signing contracts 'at very good numbers, well into the triple digits, but the stocks don't reflect that'.
'We are telling people now is a good time to buy,' he said.
Frederic Ruffy, an options strategist at Web information site WhatsTrading.com, said the whole sector was declining on the price correction.
Meanwhile, Vietnam, China's biggest overseas coal supplier, said it would cut overall exports of the fuel as much as 38 per cent to 20 million tonnes this year to ensure domestic supplies.
Reuters, Bloomberg
