Thermal Coal Prices on the Rise Despite New Sources of Supply

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Mention Colombia and most people think of drugs and death squads. It is unfortunate to say because the country has a lot more going for it than a thriving drugs business and a long history of unsavory regimes. For one thing, it has some of the highest grade low sulfur coal in the world, a fact that Asia is just beginning to wake up to and about to change Colombia’s long reliance on European and North American markets. Colombia exports about 64 million tons per year mostly to Europe because freight rates to Asia have been too high to make those markets accessible. But a new port being built by a Brazilian mining company MPX on land near the town of Dibulla could change that. The site will be used to build a coal port able to export 20mn tons of thermal coal a year with a view to developing Asian sales. According to a company news release, the US$150mn port will have a 20 meter berthing depth, allowing it to accommodate capesize carriers. The facility will service the company’s extensive mining operations in Guajira expected to come on stream in 2011.

Reflecting the current strength of the thermal coal market, Colombian coal traders have been able to sell some spot cargoes into India and China this year gaining acceptance for their product and establishing a presence. India’s biggest coal importer, Adani Enterprises Ltd., has agreed to buy thermal coal from Colombia for the first time reports this mineral and metals blogspot. A company official said that surging electricity demand in India meant the company had to diversify its purchases. The first cargo of at least 110,000 dead-weight tons is expected to land at either Mundra or Dahej ports on India’s west coast.

Although neither the source of the coal nor the quantity have been identified it is known that Cerrejon, the Colombian company that runs the world’s largest open-cast coal mine, has been touting for sales in India. Cerrejon is owned one third each by BHP Billiton Ltd., Anglo American Plc and Xstrata Plc. The company will produce 31 to 32 million metric tons of coal in 2010. India meanwhile imported 60 million tons of coal in 2009 almost double the 2008 figures and that figure is exported to hit 200 million tons by 2012, according to Macquarie Group. Imports in February were a little more than 6 million tons, up by more than 20% from a year earlier.

China too is turning to Colombian thermal coal. Although China is the world’s largest coal producer, ChinaMining said it still imported over 50 million tons in 2009 because imports to coastal utilities were cheaper than domestic coal railed or shipped from mines in the north. This winter’s severe weather in China further disrupted domestic deliveries and increased power demand at the same time, adding impetus to rising prices. In Jan-Feb 2010, China’s thermal coal imports were 21.7 mt, 242% more than last year. The rising prices may make domestic coal more viable and cap further rises in imports but supply tightness is going to keep prices firm in H2. The drought in southwestern China will not help hydro electric power supply that usually picks up from April to September with melting snows.

Although stocks at power stations in Europe have remained relatively high at 19 days in February they have started to fall following delays in deliveries from South Africa and are now down to 12 days according to HSBC reports. Diversified power producers are reluctant to rely on Russian coal supplies when they are already almost totally reliant on Russian gas too. Hence prices are now rising, up to US$ 80+ per ton for June shipments as buyers look to cover forward. Asian prices are even higher with a large Chinese utility fixing with Xstrata at nearly $100 per ton. This will become the floor for the Asian spot market going forward and power producers will likely be paying over $100 per ton by Q3.

Good news for the Colombians. At that level, they can look to diversify more sales into the Asian market, and Alaska will have the solace that rainfall will not be quite so acid in the future if China goes on buying Colombia’s low sulfur coal.

–Stuart Burns

Comment (1)

  1. Ricardo Quiroga Guzman says:

    Im very glad to know that colombian resources are going over the panet offering sustantial support for the countries in need of progress, and have at the same time an oppening figure of new bussines face for the world besides drugs.

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