German Power Reaches Five-Week High as Coal Advances on Ukraine

Apr 28, 2014 11:37 am ET

April 28 (Bloomberg) -- German power for 2015 touched a five-week high as coal rose to the highest price since January amid speculation Russia’s intervention in Ukraine will spur demand for the solid fuel to replace gas in power plants.

The German contract, Europe’s electricity benchmark, climbed as much as 1.4 percent, according to broker data compiled by Bloomberg. European coal for delivery in 2015 increased as much as 1.2 percent.

Tensions over Ukraine may keep pushing prices higher, traders said today. New U.S. sanctions will cover seven Russians and 17 companies, including some involved in the energy industry, according to a congressional official briefed on the actions. Ukraine is seeking to import more gas from the European Union amid concerns that escalating clashes in the country’s east might prompt Russia to cut supplies.

“It is all about the Russia-and-Ukraine problem,” Juraj Broncek, head of central and eastern Europe energy at 42 Financial Services, a Prague-based brokerage, said by e-mail. “Coal is rising as an immediate substitute for gas.”

German power for 2015 reached 35.25 euros ($48.79) a megawatt-hour, the highest since March 24, and European coal for delivery in 2015 touched $84 a metric ton, the highest since Jan. 30, broker data compiled by Bloomberg showed. The power contract traded at 35.15 euros a megawatt-hour at 5:20 p.m. Berlin time and coal was at $83.95 a ton.

Mines Halted

Demand for the solid fuel may strengthen at a time when supply in Europe is curbed. Kompania Weglowa, the Polish company that’s the largest coal producer in the 28-nation EU, today began a one-week halt at nine of its 15 mines that was announced April 17 amid low sales.

The 2015 German power contract might climb as high as 35.50 euros a megawatt-hour, said Danny Graefe, who has traded power and natural gas for four years at AVU AG fuer Versorgungs- Unternehmen in Gevelsberg, Germany. That implies a gain of 1 percent from the current price.

Still, “it’s too early to class this as an up trend for power prices,” said Gary Hornby, a European power and gas market specialist at Inenco in Lytham St. Annes, England.

Poland was the largest EU supplier of power-station coal to Germany in January, raising shipments by 20 percent from a year earlier to 0.2 million tons, according to data from Germany’s Federal Office of Statistics.

Czech 2015 power advanced 1.8 percent to 34.45 euros a megawatt-hour, the highest since March 14, broker data showed.