Supply may be tightening more than expected in the thermal coal market. At least for the next few months.
That's because authorities have issued a surprise shut-down order. For one of the world's largest coal mining centres, in Colombia.
Reports from this past weekend suggest that U.S. coal miner Drummond will be forced to shut down its Colombian coal exports. After regional environmental authority Corpamag told the company it must revamp its facilities before resuming operations.
The key issue is how coal is loaded for international shipments. Drummond currently uses cranes to load coal onto ships. But the Colombian government is concerned this method causes spillage of coal into the ocean. So regulators had ordered coal miners to start using safer conveyor belt loading systems, as of January 1.
Drummond is working on such a conveyor system. However, the new equipment isn't expected to be ready until March.
The company had therefore been seeking ways to avoid a shut-down at the January 1 deadline. And thought it had found one--forging an agreement with the federal Environment Ministry last month that allowed it to keep loading with cranes, while paying a fine, until March.
But this week's shut-down order from regional environmental authorities seems to fly in the face of that previous settlement. It is now unclear which government--local or federal--has jurisdiction to decide Drummond's operating status.
Coal loading at Drummond's facilities is apparently still continuing. But we'll see for how long. If this supply does go offline, it would represent the loss of one-third of Colombia's coal exports. A potentially significant amount, likely in the range of 2 to 3 million tonnes monthly.
That would make already-tight supplies of global thermal coal even tighter. Especially as India's imports continue to surge, and Japanese buyers are stepping into the market in a significant way.
Coal prices are a spot to watch ahead of Drummond's March conveyor start-up.
Here's to moving those tonnes,
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Dave Forest
