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Coal markets enjoyed a lively week, with strength picking up in European power, flowing through into stronger FOB markets. European coal buyers are expecting stronger power demand this winter, thanks to colder weather than last year, and lower wind and solar availability.

However, the coal forward curve is significantly flatter than in the recent past, indicating that the longer-term outlook remains quite bearish. Gas prices also weakened late in the week, helping the “clean spark spread” stay barely positive whilst the German “clean dark spread” still languishes in negative territory. Most markets were clearly surprised at the strength of Trump’s election performance and that Biden’s hand will likely be restrained on “decarbonising” the US economy as previously planned.

However, carbon emission prices rallied strongly whilst crude oil prices slipped back, as a Biden victory became obvious. China’s benchmark thermal coal price (“BSPI”) has strengthened to around 564 yuan ($84.2) with the arrival of the winter storage peak season, whilst its (Australian) import policy remains unclear as trade in lower-grade domestic coal is slow.

India is enjoying significant success with its e-auctions of coal mine blocks, with participants competing on the level of royalties they are willing to share with the state.

Meanwhile, thanks to an expected La Nina this year, the Mpumalanga coal fields should brace for a wetter than usual summer.

RB1 finally saw a long anticipated upwards bounce. The signal line turning bullish almost never fails to call it right. However, price action remains lacklustre and we are nowhere near seeing the rallies of previous Q4’s. If price fails to rally now then 2021 is looking decidedly ominous for SA coal exporters.

Even worse for exporters is that the ZAR has suddenly decided to strengthen. This has eroded some of the recent USD gains, although one wonders how long Rand strengthening will continue, as the dust settles after a Biden victory.

It is unlikely that Trump can now cause enough chaos to unsettle markets further, as most markets look well into next year with reduced expectations of consumer tax rises, and increased expectations of further
stimulus packages. Only time will tell…