German 2009 Power Heads for Biggest Weekly Drop as Fuels Slump

By Lars Paulsson

Nov. 21 (Bloomberg) -- German power for 2009 delivery headed for its biggest weekly decline on record as a contraction in the manufacturing and service industries curbed demand and dragged down fuel prices.

Electricity for next year in Europe's biggest electricity market has dropped 12 percent this week, trading at 57.10 euros ($72) a megawatt-hour as of 1:20 p.m. Berlin time, according to broker GFI Group Inc. That's the lowest in more than 13 months.

Major global economies including Germany, the U.S. and Japan have entered recessions that will cut energy consumption from steel producers to car manufacturers. BASF SE, the world's biggest chemical maker, plans to idle 80 factories because of lower demand from the auto, construction and textile industries.

``The industrial sector is a major point of consumption and you just can't discount that,'' Chad Tschudi, a portfolio manager at Czech utility CEZ AS, said today by telephone from Prague.

Europe's manufacturing and service industries contracted in November at the fastest pace in at least a decade, Royal Bank of Scotland Group Plc said today.

Hard coal, the fuel for more than a fifth of Germany's power production, extended its decline today, falling to a 15-month low. Coal for next-year delivery to Amsterdam, Rotterdam or Antwerp, the European benchmark contract, slid 3.1 percent to $82.50 a metric ton, according to ICAP Plc.

The weakening economy and rising coal stockpiles pushed the price down, according to Emmanuel Fages, a commodities analyst at Societe Generale in Paris, while CEZ's Tschudi said lower coal may drag electricity down further.

``Coal is the big question, and now the floor seems like $80,'' Tschudi said. Power may continue to slide, he said, adding that it would be ``without too much on the downside.'' CEZ is central Europe's biggest power company.

The generic next-year contract in Germany had its biggest weekly decline in the week ended Apr. 28, 2006, when it lost 14 percent.

To contact the reporter on this story: Lars Paulsson in London at lpaulsson@bloomberg.net