Dr Tim Jones, e-coal.com
The global recession had its effects on the coal industry in north
and south America in 2009, with a decrease in exports seen for
Colombia, Canada, the USA, and Venezuela. Imports were
variable, with a rise seen in Mexico as it resumed its
international trade for the power sector, but a decrease seen in
other countries including Brazil and Chile. This year is expected
to show a recovery as the world emerges from recession, and
trade in the Americas has been steadier over the past six
months or so. There have been some interesting developments
in the dynamics of the business as well, with reports of
significant quantities of Colombian coal being shipped to the
Asian markets for trials ahead of the upgrade of the Panama
Canal. There have been mixed views on the extent to which
coal will be exported to the Asian customers in the coming
 years, with some established players believing that Europe is the
natural market for the Atlantic shippers. The Canadians are
expected to enjoy a better year in Asia in 2010, while US
exporters of coking coal have also been seeing approaches from
the Japanese steel mills and others. There is renewed frustration
there, however, about the lack of investment in west coast
export facilities over the past decade.
As new business for 2010 is being done by the Canadians and
US shippers, there could be a new phenomenon in the coking
coal market which will take some time to assess. With the
emergence of a spot market for hard coking coal in recent years,
the move to quarterly supply contracts reached fruition early in
March. The spot market has been moving closer to that first
quarterly contract price over a relatively short period of time,
but with enough time for players to potentially make some
prediction of the price movement following a quarterly contract
settlement. How this might affect the spot market trend in
future has yet to be seen, but there could be new opportunities
for traders and speculators in these new conditions.
Still looking at opportunities for American suppliers to Asia,
Korean buyers appear to have a policy of looking at all sources
including Australia, Indonesia, South Africa, as well as Canada and
Russia. With shipments of Colombian thermal coal being sent to
China recently, it is likely that Korean as well as other major
Asian customers could take more tonnage from there in the
coming year and beyond. The actual level of growth in this
business remains uncertain for now.
Elsewhere, there have been reports of Polish investors visiting
Colombia to assess potential coal assets.
There has been a lot of activity seen in the market during the
final quarter of 2009 and over the first quarter of 2010. In the
USA back in October, the coking coal exporters were
understood to be expecting a more difficult market for their
product in Europe in FY2010 compared to that in Asia. Demand
was expected to be firmer in Asia where a recovery was
expected to be stronger than elsewhere, and with expectations
of a reference price reaching as high as US$200/t FOB (free on
board) there, the forecast European price was then looking
lower. Some analysts and market players had predicted a price as
much as US40.00/t FOB less for hard coking coal. As it turned
out, the first quarterly contracts have been settled at US$200/t
FOB by BHP Billiton. In Canada, Teck is reported to have settled
the quarterly contract price for hard coking coal with Japanese
customers also at US$200/t FOB. Deliveries are for the
April–June quarter.
In October in Canada, some financial analysts were predicting
the Canadian dollar would rise above the US dollar in value
within three months. This was seen as having an adverse impact
on revenues for Canadian coal exporters although the prices of
hard coking coal and PCI coal in particular were expected to
firm in 2010. Elsewhere, it was noted that the value of the
Australian dollar versus the British pound had increased by some
30% since the start of 2009, and currency exchange rates remain
a strong and uncertain influence on markets in 2010.
US exporters are understood to be hopeful that Asian
demand will divert more competitor coal supply from the
Atlantic over the next year, with Russian and South African
product being taken out of the balance. This could provide
better opportunities for sales in Europe if electricity demand
recovers over the course of 2010.
In Colombia in October about 30kt of thermal coal was
reported to have been shipped to Japan by Cerrejon Coal. Trial
cargoes of coking coal were also reported to have been shipped
to the major markets in Asia including Japan and Korea.
Brazil’s CSN was reported to have received offers of
metallurgical coke priced at US$450–495/t CIF (cost, insurance,
freight) following its tender seeking 2x45kt cargoes for delivery
in January and February. The tender is understood to have
been cancelled as these prices appeared to be around US$100/t
above the target level.
Glencore is rumoured to have taken a Panamax cargo of
Colombian coal from Prodeco for a Chinese customer. The
cargo is understood to have been shipped through the Panama
Canal to Australia, where it was blended with Hunter Valley
product prior to delivery. With the expansion of the Panama
Canal under way, traders could be preparing for larger contract
shipments of Colombian coal to China in future, and are
experimenting with freight and blending options.
Following market testing, Mexico’s CFE was understood to be
seeking 6.24mt (million tonnes) of coal in a reverse auction back
in November. Delivery was required during CY2010 to CY2012.
Three coal types were being sought; 4.81mt of 6,200 kcal/kg
GAR [gross air dried] (min), 1.17mt of 5,900 kcal/kg GAR (min),
and 0.26mt of 6,300 kcal/kg GAR (min).
Chile’s Electroandina has been in the market seeking 5.8mt of
coal for delivery during 2010 to 2012. Colombian shippers were
believed to be the frontrunners in this business, with the
consumer exhibiting a preference for their coal in recent
purchases. At the time, offered prices for the first year were
expected to be around US$2.00/t FOB less than the e-coal.com
Colombia Spot Price suggesting a level of around US$61.00/t
FOB basis 6,000 kcal/kg NAR (net as received). The market has
been rising since the end of 2009 and the spot price is closer to
US$80.00/t FOB at the time of writing. In January a Capesize
cargo of coal was sold for US$79.00/t FOB basis 6,000 kcal/kg
NAR. Loading was required in February, with delivery to
northwest Europe.
In the smaller coal markets in central America, in Guatemala a
new 300MW coal-fired power station is reported to be planned
by AEI Energy. The additional import market for coal could
amount to more than 800ktpa with deliveries to Puerto Quetzal.
In the Dominican Republic, AES Itabo was seeking 140kt of coal
plus 25kt of petcoke for delivery during January to March 2010.
Peru’s Cementos Pacasmayo was also seeking 60kt of coal for
delivery during January and February.
One of the major US coal importers, Southern Co has been
in the market during the past six months seeking up to 3mtpa
(million tonnes per annum) of coal for delivery during 2011 to
2014 for the Crist and Smith power stations. Southern Co was
also seeking up to 500kt of coal for Georgia Power for delivery
in 2010. A couple of months later, Jacksonville Electric Authority
was seeking 165kst of coal for delivery during January to
December 2010.
In Colombia, Glencore opted to buy back Prodeco from
Xstrata before the expiry date of its option in March. Xstrata
paid US$2bn for the miner in January 2009. Glencore has
exercised its option to buy back the mine for US$2.25bn which
was sold to Xstrata early last year. Meanwhile, Prodeco has
started exploration drilling at the Galca coal project in Cesar.
Glencore is understood to be proceeding with the buyback for a
total price of US$2.5bn. The additional US$0.25bn is for
improvements made by Xstrata since the original sale. The mine
were reported, but it appears that coal railings and port loadings
had not been disrupted significantly by that. A strike by
Canadian National Railways was reported, however, and this did
have some impact but was resolved after four days.
In the metallurgical coke market, there are rumours that
demand could begin to pick up in South America over the
coming months as steel makers have been depleting stocks as
they increased steel output over the past few months.
Venezuela’s producers are rumoured to be looking to
increase exports of PCI (pulverized coal injection) coal in 2010
after a lacklustre couple of years. Marketing staff are
understood to be seeking additional business in Europe, despite
the relatively slow improvements in steel output in the region
compared to Asia. Anglo Coal, however, has recently announced
plans to sell its stake in Carbones del Guasare. This will leave
the company with no involvement in Venezuela’s coal industry.
There has been speculation in the USA about Peabody’s
continuing activities in the Venezuelan coal industry following
Anglo’s decision to exit. During the past year, Mina Norte
restarted production in Venezuela after a nine-month shutdown
due to lack of equipment and funding. Carbozulia was
understood to be providing the new funding for the mine.
Alaska’s Usibelli Coal is reported to have had a better year in
2009, with exports understood to have reached around 815kt.
China and Korea have been major markets, with other Pacific
Rim countries also taking more tonnage.
Regarding overseas investments by South American coal
users, in Mozambique, Brazil’s CSN has acquired 16.3% of
Riversdale for US$175m and is expected to import its coking
coal for its steelmaking operations.
More recently in the US markets, Xcoal is reported to have
sold 1.5mst (million short tonnes) of Patriot’s hard coking coal
to steelmakers in the Pacific market. Delivery is due this year.
Chile’s Rio Grande has moved a step closer to constructing a
new 700MW power station in Coronel. An environmental
impact assessment has been submitted, and commissioning could
be achieved by 2014. The plant would be a new market for
imported coal. Electroandina and Edelnor are reported to have
suggested that demand for imported coal could reach 18mtpa by
2017. This compares with 6mt recorded last year.
Brazil’s CSN was recently in the market seeking 45kt of
12.5% ash metallurgical coke. Delivery is required in April.
Usiminas has been in the market with a quick enquiry seeking
two 50kt cargoes of anthracite. Delivery is required in March
and August. For reference, the price of South African anthracite
has been quoted at around US$85.00/t FOB, but sales elsewhere
appear to be at higher levels reflecting the value in use of
anthracite compared to thermal coal. There has been one such
indication of the price of South African anthracite which is in line
with expectations, and substantially higher than some published
prices. Usiminas was reported to have purchased 100kt of fines
from Glencore at a price of about US$120/t FOB. This is around
50% higher than standard internationally traded thermal coal as
tracked by the e-coal.com South Africa Spot Price, and this
indeed reflects the value-in-use of anthracite. A 50kt cargo was
required for delivery in March, with a second 50kt cargo
required in August. Meanwhile, Usiminas has been evaluating
offers of HV hard coking coal from the USA, having requested
120kt for delivery in Q2. Reports indicate a price of US$200/t
FOB is being sought by shippers on the US east coast at the
time of the enquiry.
The potential for additional exports of Colombian coal to
China and other Asian markets is continuing to interest the
market. The latest rumours suggest the shippers could undercut
Australian exporters of not only thermal but PCI and coking
coal in an effort to find new markets outside the lacklustre
European and US markets at present.
In the US coking coal market in the first quarter of 2010,
prices for US hard coking coal being offered in Europe have
been reported to be from US$175–190/t FOB east coast for HV
material to US$225-240/t FOB east coast for LV product.
Relatively little spot activity has been reported compared to the
Australian spot market. Japanese steel producers were visiting
US suppliers of coking coal amid the calls for quarterly pricing
from Australian shippers. Sources in the USA suggest the JSM
could take up to 4mt of US coking coal in 2010.
As a sign that the market has been picking up, earlier reports
indicated the Chinese steel mills had purchased hard coking coal
priced at about US$160/t FOB Baltimore. Other cargoes had
also been purchased for loading at other ports. The buyers
appeared content to pay a delivered price of just over US$200/t
for this material at the time. Consol was rumoured to have sold
410kst of HV materilal from the Bailey and Blacksville operations
via trader Xcoal.
In the US thermal coal market, Progress Energy Carolinas
issued an LT tender seeking coal for delivery starting next year.
Imported coal is to be delivered to Charleston and Wilmington,
with offers required on a CIF basis. Domestic material is also an
option, with offers requested FOB barge or mine.
Peru’s Enersur is reported to have once more purchased
Colombian coal following its tender seeking 6x50kt cargoes for
delivery during 2010. The price was believed to be in the low
US$70s per tonne adjusted to basis 6,000 kcal/kg NAR and was
reported to be supplied by Belgium’s Electrabel in a trading
In the USA, there have been reports of rising prices for
petcoke during the first part of 2010. A 45kt cargo of material
was reported sold for US$68.00/t FOB basis 7,500 kcal/kg NAR
(8,375 kcal/kg GAD approx). This equates to around US$54.00/t
FOB adjusted to basis 6,700 kcal/kg GAD, but the sulphur
content was much higher than standard internationally traded
coal, at about 7.5%.
In Colombia, environmental concerns have led to the
temporary closure of the 600ktpa port of Michelmar in
Barranquilla. Coking coal shipments are likely to be impacted for
at least three months according to reports from the country.
Exports of coking coal and coke have been impacted further by
the temporary closure of the 900ktpa Mamonal port in
Cartagena due to environmental issues over dust. Around
1.5mtpa of coking coal and coke export facilities have been out
of action following the temporary closure of Michelmar and
Canada’s Nova Scotia Power is reported to have purchased
two Panamax cargoes of El Hatillo coal for delivery in February
and March. The Colombian material is believed to have been
priced at around US$82.00/t FOB basis 6,700 kcal/kg GAD.
Nova Scotia Power has also been in the market seeking up to
750kt of low sulphur coal for delivery during 2011 to 2014.
Colombian exporters have been successful for the first time
in a tender by Korea’s Kowepo, with 400kt being awarded
according to reports from the region. The price is reported to
be very close to the then e-coal.com Colombia Spot Price at
about US$82.00/t FOB basis 6,700 kcal/kg GAD.
The easing of cold weather in China was thought to be
impacting demand for coal ahead of the New Year holiday, but
this appears to have been unwarranted. Market players report
continued activity in that region over the past week or so, with
enquiries for coal being made in all major supplier countries
from South Africa to Colombia, and the USA.
Around the coasts of the Americas, having missed
opportunities to export coal from the US west coast in recent
years, some analysts have been looking again at the potential for
developing port capacity for the Asian market. Reports suggest
the strongest candidates would be the Port of Longview and the
Port of Vancouver in Washington state, and the Port of Long
Beach in California. The development of a new port at Puget
Sound in Washington is also considered possible, although
environmental issues would be greater in any greenfield location.
In Colombia, a new Capesize coal port is being planned in La
Guajira by Brazil’s MPX Energia. The facility would have a
capacity of 20mtpa when complete, and the company is
expected to begin coal production late next year. MPX Energia
has gained approval for the construction of a new port at
Copiago in Chile. Coal could be imported through the facility
for the proposed UTE Castilla power station. In Canada, reports
indicate that the capacity expansion to 29mtpa at Westshore
Terminals was completed in January. Throughput for 2009 is
forecast to be down year on year to around 20mt compared to
21.2mt in 2008. Elsewhere, in Mozambique the government has
signed an agreement with Brazil’s Vale to develop rail and port
faclities to handle production from the Moatize mine. The
development is expected to cost US$1.6bn.
In some ways the recovery of activity in the global economy
compared to a year ago seems remarkable. While mines were
being idled due to a stop in new business, and share prices
plummeting, there have been some unprecedented recoveries
during the past twelve months. Western Canadian Coal is one
such example when its share price fell to around 24p in London
last year. Now renamed Western Coal, the share price has
recovered to around 380p (up 1,483%) in 12 months as its
coking coal operations in Canada, and interests elsewhere
appear to be booming once again. This is the greatest recovery
of any listed coal company noticed during these remarkable times.
The resilience of the coal industry is clear, and while there
are many challenges for the players in the Americas, the
consensus now is that the future is looking generally up. As has
been the case for a number of years now, the international coal
markets are expected to be influenced most strongly from
outside the Americas, with China and India playing major roles in
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.