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New UserA Major Coal Supplier Gone Within Hours?
27 Jun 2014
A bit of an "out of right field" development in the coal market yesterday. With potentially big implications for global supply and pricing.
The news came from critical thermal coal supplier Colombia. Where it appears export shipments will be abruptly halted at any time.
That's because of labor unrest hitting major producer Cerrejon--operator of the largest open-pit coal mine in South America.
Reports suggest that those operations have been largely crippled by workers from local security firm Sepecol. Who have blocked the railway line leading from the Cerrejon mine to port export facilities.
The move is intended as a protest, after Cerrejon failed to renew a contract with Sepecol. Setting up the termination of several hundred security employees when the current contract expires at the end of June.
The shutdown of the railway means no coal is moving now. With Cerrejon officials saying that stocks at the port will likely be depleted today or tomorrow. Forcing the company to look at completely halting export shipments.
As the company's Vice President of Public Affairs, Juan Carlos Restrepo, told Reuters, "We're looking, together with our lawyers, at the possibility of declaring force majeure given the inability to adhere to our trading commitments, if the situation persists."
This would be an important loss of global supply. Given that Cerrejon was last year one of the world's largest producers--at 33 million tonnes of output.
If that supply is lost, it sets up some interesting dynamics. The majority of Colombian coal is currently shipped to Europe. A region that could now be forced to look for alternative supply.
One go-to source would be South Africa. One of the few suppliers globally that's positioned to sell into either European or Asian markets.
If more South African coal does flow to Europe, Asian customers like India might in turn be left with a shortfall. Prompting them to buy more aggressively from Asian producers like Indonesia or Australia.
We'll see how long the Cerrejon shutdown wears on. But any prolonged interruption here could be the shot in the arm that the bottoming coal market has been looking for.
Here's to supply security,
Source: Oilprice.com