Prodeco, Glencore International plc’s coal mining operation in Colombia, is currently building a new coal export terminal facility to better meet new demand for this coal, said Glencore in an Aug. 21 interim statement.
Prodeco currently exports the majority of its coal through Puerto Prodeco which operates under a private concession awarded by the Colombian government. This concession expired in March 2009, however the Colombian government has continued to grant Prodeco the right to use the port under annual lease agreements, currently expiring around the time of the expected commissioning of Puerto Nuevo in the first half of 2013. To comply with new government regulations on loading methods, which became effective from July 2010, and to address the uncertainty of the annual concession renewal process associated with Puerto Prodeco, the company has commenced construction of a new, wholly-owned port facility (Puerto Nuevo) which is estimated to cost $560m and be commissioned over the first half of 2013.
Prodeco’s coal production was 7.9 million tonnes in the first half of this year, a 12% increase compared to the first half of 2011. This increase is attributable to the broad expansion project currently underway which is expected to increase annual production to 21 million tonnes by the fourth quarter of 2014. All mine-based infrastructure and support projects to facilitate the expansion (including maintenance workshops and crushing and coal handling systems) have been completed on time and on budget and are in operation.
As for overall coal markets in the first half of 2012, healthy production levels in the traditional exporting countries, compounded by a significant increase in U.S. year-on-year thermal coal exports due to low domestic natural gas prices, precipitated Atlantic market price declines, notwithstanding record high levels of coal consumption in Europe, Glencore noted. On an average basis, API 2 and API 4 coal index prices were down 22% and 18% respectively, compared to the first half of 2011.
In the Pacific markets, prices were initially supported by strong demand across the region, especially China, where imports annualized at above 200 million tonnes in 2012 against some 175 million tonnes in 2011. However, strong Indonesian production together with higher Chinese hydro production and some displaced Atlantic market coal placed some downward pressure on prices, notably from Australia and Indonesia.
Metallurgical coal markets remain somewhat restrained due to the macroeconomic outlook and slowing steel demand growth in Europe, South America and China, Glencore noted.
The outlook for coal should get better, with a large portion of seaborne exports selling lately at below average global production cost. This should result in further production cuts and support prices, Glencore pointed out. Demand for coal across most markets remains strong with the global “burn rate” at record levels on a seasonally adjusted basis. Moreover, an overhang of off-spec coals should in time lead to a positive outcome for quality-oriented exports and a return to favorable premiums for such products, Glencore added.