Coal Overview
Coal swaps saw further significant declines today, with API2 leading the losses, driven by a 2.5% drop in European front-month natural gas prices. The bearish momentum extended to the physical DES ARA market, contributing to the API2 downturn. Simultaneously, weaker sentiment in Asia-Pacific physical coal markets weighed on Newcastle (NEWC) swaps.
Newcastle coal futures remained below $142 per tonne, marking their lowest level since late September. This weakness reflects robust Chinese coal production and increased availability of alternative energy sources. In October, Chinese coal production grew by 4.6% year-on-year as safety inspections at major mines concluded, allowing producers to ramp up capacity. Meanwhile, heavy rainfall in China’s Yunnan province boosted hydroelectric power output, reducing reliance on coal for electricity generation.
Despite these headwinds, Newcastle futures are still 25% higher than their March lows, underpinned by strong demand for thermal power.
European Natural Gas
European natural gas futures climbed above €48.2 per megawatt-hour, nearing the one-year high of €48.7 reached last week. The increase was driven by a colder weather outlook for early December, heightening expectations for gas-intensive heating demand. However, supply uncertainties continue to weigh on the market. Russian gas exports through Ukraine remained stable last week, despite temporary halts earlier in the month due to contract disputes between Gazprom and Austria’s OMV. Additionally, gas requests via Austria and Slovakia are yet to return to pre-halt levels. With flows through Ukraine set to cease by the end of December amid the ongoing Russia-Ukraine conflict, European gas inventories stand at 88% capacity, 10 percentage points lower than this time last year, adding to supply concerns.
Brent Crude Oil
Brent crude futures hovered around $73.1 per barrel on Tuesday after losing nearly 3% in the prior session. Reports of progress towards a deal to resolve the Israel-Hezbollah conflict eased fears of supply disruptions in the Middle East. An Israeli official indicated that a resolution could be reached “within days,” though uncertainty remains over Hezbollah’s willingness to accept a truce. Oil prices also faced downward pressure from a strengthening US dollar, following President-elect Donald Trump’s threats to impose tariffs on Canada, Mexico, and China. Despite these headwinds, escalating tensions between Russia and Ukraine, as well as Iran’s plans to expand its nuclear fuel production, offered some support, limiting further declines. Markets now await the OPEC meeting on December 1st for clearer guidance.
Iron Ore
Iron ore prices for 62% iron content cargoes stabilized near $102 per tonne, supported by stronger global steel production, reduced inventories, and optimism over potential economic stimulus from China. Global crude steel output rose by 0.4% in October to 151.2 million tonnes, led by a 2.9% increase from China, which produced 81.9 million tonnes. A decline in Chinese steel product inventories, boosted by robust exports, further supported iron ore prices. While China’s central bank held lending rates steady this month, markets remain hopeful for additional policy measures to counterbalance economic pressures, including higher US tariffs under the incoming Trump administration.
Copper
Copper futures declined on Tuesday, reversing gains from the previous session as the US dollar strengthened. The dollar’s rebound followed renewed trade concerns after President-elect Donald Trump reiterated his intention to impose tariffs on key trading partners, including China, Mexico, and Canada. Expectations of US economic resilience and inflationary policies under the new administration further bolstered the dollar, making dollar-priced commodities like copper more expensive for foreign buyers. Additionally, persistent economic uncertainties in China, the world’s largest copper consumer, weighed on the market as Beijing hesitated to roll out new stimulus measures to support growth.
Lithium
Lithium carbonate prices rose to CNY 79,000 per tonne, rebounding from October’s three-year low of CNY 71,000. The recovery was driven by tightening supply and an increase in demand. China’s government recently introduced subsidies encouraging the trade-in of older vehicles for electric cars, raising expectations for higher battery production and restocking of lithium inputs. Despite historically high inventory levels, battery manufacturers have increased purchasing activity, partly driven by concerns over potential trade disruptions linked to the incoming Trump administration. Earlier price declines also prompted significant mine closures and production curtailments, with an estimated 190 tonnes of lithium mine output curtailed since 2023.
