Dr Tim Jones, e-coal.com 

While the coal markets continue to see weak prices around the world, and many American players face serious challenges, the latest indications suggest overall thermal coal trade in the Americas will continue its modest recovery seen over the past couple of years. Total thermal coal imports across the continents are forecast to reach about 40mt (million tonnes) this year, which is 2–3mt more than in 2014. The main growth is expected to be in Brazil, with Chile and some central American importers also taking more material. Chile is forecast to be the largest thermal coal importer in the Americas this year with around 10mt required. The USA is expected to be second with about 9.5mt so these two countries account for half the thermal coal import demand in the Americas. Brazil and Mexico take about another third between them. Guatemala is noteworthy as a growing, if smaller market, and the country has a programme of coal-fired power projects which will increase demand in the coming years. In 2015, Guatemala is forecast to import about 1.5mt of thermal coal which is a tripling over the past five years.

On the thermal coal export side, US volume decreased substantially last year compared with 2013 after its recent peak in 2012 at about 47.5mt. Exports were about half that in 2014. US producers have been looking at domestic markets as the international market makes it more and more difficult for them to sell at anywhere near a profit. The US was known as the swing supplier, coming into the Atlantic thermal coal market when prices are strong, and leaving when they weakened. That is the current situation. The exporters have not been looking to renew export contracts amid current prices and some did not do so last year, or this year when some expired.

Colombia remains the largest exporter of thermal coal in the Americas with about 75mt shipped in 2014. This was an improvement on 2013 despite the country being impacted by the market challenges last year. These included the new coal loading regulations which affected some exporters who were unable to comply by the government deadline. The Colombian shippers were able to make up lost ground amid the difficult market over the course of the year, and the trend in exports can be seen in the accompanying charts. Atlantic business proved to be better than expected, and this was helped by the tightening of US supply and competition elsewhere. Russia emerged as more of a competitor to the Colombians as the US dollar exchange rate moved in the Russians’ favour in Europe, but the South Americans still sold more tonnage to Turkey and their major buyers in Spain. Closer to home, there was growth in exports to Brazil.

The Canadian thermal coal exporters saw a flat year in 2014 with just over 3mt shipped.
They managed to exploit new demand for their product in Taiwan, however, with 0.5mt sent there. Canada’s coal users have been importing around 2mtpa (million tonnes per annum) and this is expected to remain steady this year with supplies coming from the USA and Colombia. Transpacific markets have been thin for other American shippers including Colombia, and Venezuela’s coal industry continues to stagnate after years of difficulty. That country only shipped about 2mt last year.

On the demand side, Brazil has needed more imported thermal coal to cope with demand at some of its 3.9GW of coal-fired power station capacity amid lower hydro capability.

Higher imported gas prices have helped coal compete in that market as well. While the USA has been the largest coal supplier to Brazil, the importers have been increasing their purchases from Australia, Canada, and Colombia. Thermal coal imports have been forecast to increase this year, and possibly in 2016, but this is heavily dependent on rainfall which obviously controls the hydro capability in Brazil.

Chile is the main importer of thermal coal in South America, with around 10mt taken in 2014. Most of this is shipped from Colombia but the US exporters managed to take some market share from them last year. Almost 75% has been supplied by Colombia with most of the remainder coming from the USA. Australian thermal coal exporters sent around 0.5mt in 2014 and there was a small quantity supplied by Canada. The closure of the Bocamina II power station has impacted thermal coal demand in Chile, and coal-fired power projects have been facing more opposition from environmental organizations. A couple of new plants are due to be commissioned over the next 18 months and those will require some imported coal.

Chile’s domestic coal production, however, is growing with Mina Invierno producing enough to export some product to buyers in India,The Netherlands, Spain, and Poland last year. The product is mainly lower quality sub-bituminous coal so the country is expected to need imported material in the
coming years. Output is around 4.5mtpa. Hydropower availability has been slowing coal import demand and this year is not currently expected
to see much of an expansion of thermal coal imports as one new power plant comes online.

The small Central American countries taking imported coal include Dominican Republic, Guatemala, Honduras, and Panama. Dominican Republic imports are currently just over 1mtpa with most coming from Colombia. This is expected to more than double within three years when the 752MW Santa Catalina power station comes online. A Panamax coal terminal is also under construction to facilitate the project.

Guatemala has seen increased demand for thermal coal due to its new 330MW AEI Jaguar Energy power plant. This station is expected to need around 0.7mtpa of coal when operating at full capacity and this is likely to be supplied by Colombia. The country imported about 1mt in 2014 and this is forecast to increase to around 1.5mt this year. Honduran demand is small at about 50ktpa with a couple of power plants requiring imported material mainly for the sugar industry. Panama’s cement industry accounts for its demand for imported coal, with some 0.45mt being required each year. Colombia is the supplier to these buyers. 

Mexico increased its output from coal-fired power units last year and imported about 6–6.1mt of coal in 2014. The forecast is for an improvement on this during 2015 and possibly next year as well in order to satisfy increasing demand for electricity. The economy is understood to be in reasonably good health at present compared to previous years. Comision Federal de Electricidad (CFE) has been issuing tenders for imported coal to supply its Carbon II and Petacalco power stations. Major traders have been successful in these tenders over the years sourcing suitable coal from a number of supplier countries.

Peru has been importing a few cargoes of coal in recent years, but there was a decrease in tonnage last year to around 0.46mt compared with about 0.8mt in 2013. Competition from gas-fired units contributed to this decrease. The country’s cement industry also contracted and therefore used more domestic anthracite in 2014, but an earlier build up in national coal  stocks in anticipation of a high import tax led to plentiful supplies on the pads last year. Power generator Enersur is understood to have had high coal stocks. Venezuela has been the main supplier to Peru recently, with other tonnage being purchased from the Colombian shippers as well as a small amount from the USA. Peru is expected to import about 0.5mt of coal this year, but if the import tax is introduced then imports are likely to be lower after that.

In recent corporate news, Canada’s Atrum Coal signed a Memorandum of Understanding with a Korean anthracite trading company over the proposed
Groundhog mine in British Columbia. The mine is planned to produce 5.4mtpa when fully operational and the non-binding offtake agreement
has helped move the project forward. In addition, Atrum signed a finance agreement with China Coal Technology and Engineering Group for equipment needed for the mine. Production could start by the end of this year. The initial finance package is for US$100m to be repaid over four years, and a further US$250m is required later as the project ramps up to full capacity. Other offtake agreements are being sought by Atrum. 

Elsewhere in Canada, the government of British Columbia is to pay Fortune Minerals and an affiliate of Korea’s POSCO US$15.1m for 61 coal mining licences held by the companies. Progress has been slow in deciding how to proceed with the mining in indigenous Tahltan land which the companies plan to include a 3mtpa anthracite opencut operation. The companies could buy back the licences within ten years if agreement is reached between all parties concerned, and could result in a 25-year mine in the Mount Klappan area.

In Colombia, there was a threat of strike action over an increase in road haulage rates in May. The rates were expected to increase from around US$40–50/t to around US$60–70/t which would make exporters of coking coal and metallurgical coke uncompetitive in the international market. The National Federation of Coal  Producers expressed concern over the approval of the increase by the Ministry of Transportation. It is estimated that up to 100,000 people could be affected by adverse impacts on coal producers in the departments of Cundinamarca and Boyaca´. If the Colombian peso strengthens against the US dollar, the impact could be even more serious.

Meanwhile, coking coal and metallurgical coke producers in Boyaca´ and Cundinamarca may begin railing material to the Caribbean ports on the revamped Central Rail System late this year. Work being done on the line between Bogota´ and Belencito and between La Dorada and Chiriguana´ is on target for completion by Q4 2015 and this will link up with the Fenoco line at Chiriguana´. The mining areas further inland will benefit from the improvements, and costs are likely to be about a third lower than for road haulage. If road haulage rates increase, the savings would be even more.

The Fenoco rail line managers have their own problems on environmental issues following a court order to reduce noise in Bosconia. A method of alleviating the noise involving the construction of a 2.5km wall on each side of the rail line is facing opposition from residents there. Longer trains may also be necessary to cope with haulage demand and to avoid railing during restricted hours during the night.

Coal stocks at Glencore’s Puerto Nuevo have been some 200kt below the average of 0.9mt and Drummond has had stock levels around 50% of the
average of 0.8mt. Coal railing restrictions at night, lower demand from customers, cargo deferrals, and other reasons have been mooted as possible causes.

In the USA this year there have been further declines in the export market in some regions. In the US Gulf during the first quarter this year the operators in Mobile and New Orleans recorded lower exports compared to the same period in 2014. 

There was a decrease of some 25% at 5.58mst (million short tonnes) compared to 7.48mst in Q1 last year. Coking coal shipments from Mobile amounted to 2.89mst in Q1 2015 compared to 3.47mst in Q1 2014, but thermal coal exports were higher than last year at 0.59mst compared to 0.12mst. Thermal coal exports from New Orleans reached only 1.89mst compared to 3.18mst a year earlier, and coking coal shipments reached only 0.19mst compared to 0.7mst during Q1 2014.

Sub-bituminous coal exports through the northern ports increased during the first quarter of 2015 to reach 1.35mst compared to 1.05mst in the same period last year. Total coal exports increased as a result with 2.84mst recorded compared to 2.7mst a year earlier. Thermal coal shipments declined, however, from 1.14mst last year to just 1.09mst this quarter. There was also a decrease in coking coal exports from 0.48mst to only 0.38mst. Meanwhile, in the Canadian  port business, there has been a change in plans for shipping coal on the Fraser River which affects US producers in the west looking to export their product to Asia. Vancouver company Fraser Surrey Docks is developing a 4mtpa coal transfer terminal which was to rail coal on BNSF rolling stock direct to the terminal for loading onto barges. These would transfer coal to Capesize vessels at Texada Island for shipping to Asia and elsewhere. Current market conditions have resulted in a more cost-effective option of direct loading from the trains onto Panamax ships at the terminal.

On the US east coast, falls in coal exports were also recorded during the first four months of 2015 compared with last year. The total at Hampton Roads was 10.0mt which was a decrease of some 32% compared to 14.7mt recorded in the same period last year. Recent months have been weaker as well, suggesting the total for 2015 could be 20–30% lower than that recorded in 2014 which was 37.3mt.

There has been speculation that more US coal miners have been in financial difficulty amid the ongoing adverse market conditions. One recent one was Walter Energy, but the company has allayed fears by meeting interest payments on senior debt on schedule. The coking coal producer had been expanding a few years ago before the weakness in world markets took hold, and had acquired operations as far away as South Wales. Bankruptcy was considered an option in recent assessments, but this has been avoided and the company is negotiating with its creditors on future business.

In Brazil, there have been signs of improved coal imports during the first four months of this year. Up to 30 April, total coal imports reached 8.1mt which was an increase of some 16% compared to the 7.02mt recorded in the same period in 2014. The USA was the main supplier, just ahead of Colombia, with a total of 2.33mt but this was lower than the 2.68mt reported a year earlier. Colombia supplied 2.29mt which was an increase of 26.6% compared to 1.81mt in the first four months last year. The Brazilian consumers took around 55% more Australian coal during the period this year, with 2mt recorded compared to 1.29mt last year.

More Russian coal was also imported this time, with an increase of some 108% at 0.45mt which was 0.23mt more than that a year earlier. Imports from Canada totalled 0.69mt which was a decrease of 24% from 0.91mt in the January to April 2014 period.
Market share of the main three supplier countries during the period this year was 29%, 28, and 25% for the USA, Colombia, and Australia respectively.

The Brazilian metallurgical coke market was firmer during the first four months of this year and imports rose by 6.6% to 0.71mt compared to 0.67mt during the same period last year. China had the largest share with 0.43mt reported, overtaking Colombia compared to a year earlier. The Colombian coke suppliers shipped 0.28mt this time which was the same as last year. The Brazilians have taken less anthracite this year, with South African tonnage amounting to 0.21mt of a total 0.34mt. Russia shipped 0.086mt. The total was down 44% from 0.61mt in the first four months last year.

In the USA, the sale of the Kodiak coking coal project in Alabama has been delayed again.Attila Resources is aiming to sell its asset to Magni Resources for some US$55m and the deal was expected to be completed by the end of March. Talks between the parties continue and may extend into June according to recent reports which also indicate that the company needs to sell the asset in order to have sufficient funding to continue in business. While mergers and acquisitions are proceeding in this market, it does present much more challenging issues for those involved, and the delays are indicative of such issues.

Meanwhile in Colombia, Goldman Sachs is understood to be selling its thermal coal assets operated by Colombia Natural Resources due to the challenging market. The assets include the La Francia and El Hatillo mines in Cesar department, the port of R´io Co´rdoba, plus a 16.8% stake in the Fenoco railway. The country is also believed to be a difficult one for the company to operate in and this has added to the reasons for deciding to sell. Industrial disputes have been a problem and output has decreased in recent years. The government had ordered a direct loading system to be installed at Rio Co´rdoba by January last year, but coal exports were stopped when the deadline was missed. Geological issues have also been affecting coal production. The mines produced 0.87mt of coal in 2014 which compared with 3.27mt in 2013. Exports reached only 0.12mt in 2014 compared to 2.8mt in the previous year.

So it is clear that there are mixed situations across the coal industry in the Americas at present. While major trading players like the USA and Colombia are seeing some bigger challenges, some of the smaller players such as Guatemala and Dominican Republic are enjoying a boost. The accompanying charts show the trade trend in some of the main countries, but it is clear that prices remain weak this year. This has been a challenge for producers for a number of years now and there is little sign of an improvement for them. Political issues are also a problem for operators in Venezuela where the coal export market has contracted to such an extent as to be almost negligible outside the continent, but still useful for local markets like Peru. In that country, however, government tax policy is an issue of concern to the coal importers who might otherwise benefit from increasing coal purchases amid the weak international markets. The transpacific thermal coal market that had emerged a few years ago, particularly for Colombia, has diminished from those levels and is unlikely to improve in the foreseeable future. European and Mediterranean markets will be the main focus for the exporters in the near future, and until prices firm substantially, the lower US activity in the Atlantic markets will remain. A boost to trade in Brazil and Chile is, however, expected to help make this a slightly better year for coal overall across the Americas compared to 2014. This year will continue to be a challenge for coal trade in the Americas, with mixed fortunes for the players depending on individual circumstances. DCi

Dr Tim Jones is Director of e-coal.com Consultancy and Editor of the weekly publication Coal Market Intelligence which covers 11 spot markets worldwide, gives key information on the latest deals and tenders, company news, people and jobs, industrial relations, and ports, shipping, and freight rates.