Thermal coal oversupply
in the Atlantic market and logistics costs have led to very poor
performance at Brazilian miner Vale’s Colombian coal
mines, a Vale official said on Wednesday.
In July Vale reported that its overall Q2 profits fell 84
percent from the same period of 2008 due to lower iron ore
output and prices.
The official did not give details of the Colombian mines’
financial performance.
Vale bought 100 percent of the coal assets of Cementos Argos
S.A. in Colombia in December 2008 for $305.8 million.
These consist of the El Hatillo opencast mine, which
produced 1.8 million tonnes for export in 2008 and the Cerro
Largo reserve.
“In the short-term, the Colombian operations faced several
problems that led to a very poor financial performance,” the
Vale source said.
“On the demand side, the Atlantic market for thermal coal
was oversupplied, which restricted sales to a minimum, thus
leading to inventory building.
“On the operating side, we faced problems with service
suppliers and the cost of logistics.”
Weak end-user demand in Europe and the United States, the
two key markets for Colombian coal, has hit all Colombian
exporters to varying degrees, producers and traders said.
The larger producers such as Drummond Coal, Cerrejon and
Glencore have been cushioned by term contracts linked to the
South African API4 index, signed before coal prices fell and
freights rose.
Small to medium sized producers and co-operatives have been
struggling to sell their output throughout this year.
“Vale has sold less than a third of 2009’s output – probably
around 500,000 tonnes,” said a trader.
Vale has been forced by low sales and logistical problems to
almost fill its stockpile capacity at the mine, traders said.
However, Vale says the operating problems are being solved
and demand conditions are slowly improving.
“For instance from August onwards the El Hatillo thermal
coal mine sales start to be transported to the port by rail,
instead of trucks, which will mean a significant cost
reduction,” the Vale source said.
“It will certainly help with costs to use rail not trucks,”
another trader familiar with Vale added. “But they still have to
sell the coal.”
Colombia’s thermal coal exports are expected to be around 61
million tonnes in 2009, slightly down from 2008’s levels. (Reuters)