Saturday, July 27, 2013

Impact of current market on Hard Coking Coal Industry

Specialist hard-coking coal prices around the world bode ill for likes of debt-laden Solid Energy and litigation-bound Bathurst Resources, and their respective West Coast operations in New Zealand.

Since 2011, hard-coking coal had plunged in price from $US290 a tonne to about $US140. Similarly, lower-grade thermal coal (on Newcastle prices) for energy generation has gone from $US121 to a tonne to about $US94.

Hard-coking prices in 2008 were 60% higher at $US350, a period when Solid Energy was investigating several speculative fossil fuel alternatives, and in 2011 were still about $US330.

However, Solid Energy was plunged into crisis in March because of the declining global coal price, leaving it shedding hundreds of staff and revealing about $390 million of debt. Bathurst is fighting its way through the courts over consent challenges, which has stalled it by about 18 months.

Research by Craigs Investment Partners has highlighted market instability. "With prices below US$140 a tonne the consequences for the coking coal industry could be quite severe," the research said.

Also stating that China's coal consumption remained ''key'' to Coal exporters, but highlighted market instability reflected in buyers purchasing ahead by only one month at a time, instead of by the quarter.

''The forward contracts are the key; it's the quarterly contracts which offer stability,'' to producers.

He said the price settlement, for the second quarter to June, was ''surprisingly high'' at $172 a tonne and he expected buyers to pressure producers on price to better reflect the likely conditions of the third quarter.

While overall global prices could remain depressed, Craigs research noted Chinese imports were on track to rise by about 30% this year, underpinned by strong domestic steel output and a ''greater availability'' of coking coal from Australia.

Mr McIntyre cautioned that downgrades in Chinese economic growth forecasts were likely this quarter, including liquidity constraints and the Chinese Government's concerns about overcapacity and asset values.

Similarly, economic growth in India and Brazil had been ''disappointing'' and a price recovery later in the year could be undermined by India and Brazil's combined consumption.

While prices could be depressed, Mr McIntyre was ''cautiously confident'' that both India and Brazil's imported coal growth would be about 8% during 2013.

About half of Solid Energy's annual 4 million-tonne coal output was the export-quality hard-coking coal, while the majority of Bathurst's targeted 3 million-tonne output will be hard-coking coal, Mr McIntyre said ''If coal prices get much lower, I'd be surprised if many of the high production-cost operators can keep going”.

Wednesday, July 24, 2013

Drummond's Colombia coal miners go on unlimited strike

* Stoppage halts all Drummond Colombia output immediately

* Union would suspend strike if acceptable offer made

* Coal prices could rise at loss of 1/3 of Colombia coal

Workers at the Colombian operations of U.S. coal miner Drummond went on indefinite strike late Tuesday, in a move set to cut output in the world's No.4 coal exporter by around a third and bolster prices.

Drummond, which has two mines and a port in Colombia, and the Sintramienergetica union, which represents about half of Drummond's roughly 10,000 workers, had been in negotiations for weeks over pay and upcoming job cuts among port workers.

"It is indefinite. Unfortunately the company wouldn't budge. It's a pity," Edgar Munoz, vice-president of Sintramienergetica told Reuters. He said the union remained open to dialogue and could suspend the strike if the company improved its offer.

A Drummond spokeswoman confirmed the strike and said all the firm's output from Colombia would be shut off as a result. Stocks at Drummond's own port would be unable to be shipped, she said, since workers there were part of the strike action.

Although the seaborne coal market is well supplied, a prolonged strike combined with upcoming stock purchases ahead of winter could puncture that surplus and push up prices in Europe, where much of Colombia's supply is consumed.

Drummond produced 26 million tonnes of coal, or almost one-third of the country's total output in 2012. Coal is one of Colombia's biggest exports.

One local coal source told Reuters he understood there was a ship at port which was 33,000 tonnes short of loading its scheduled 170,000-tonne cargo. It was not clear whether the union would allow it to finish loading and depart.

Though Colombian output is small compared to the United States and China, it is a major player in the seaborne or coal export trade since those countries consume much of their own production for electricity.


The union has demanded a 9 percent pay increase with smaller inflation-linked increments in subsequent years. In a statement hours before the strike, Drummond said its latest offer was 4.75 percent for the first year plus a one-off bonus of about $3,700.

"We are convinced that it is an excellent proposal, especially taking into account current low prices for coal in the industry and those expected in coming years," Drummond's statement said.

Prices for coal destined for Amsterdam-Rotterdam-Antwerp (DES ARA) and delivery in September traded around $76.20 a tonne on Tuesday, up $0.20 from the previous day's close, with 50,000 tonnes changing hands, as hopes for a deal dimmed.

That is 15 percent less than coal bound for the same destination a year ago, pressuring miners' margins and limiting Drummond's room for maneuvre in negotiations.

In the market for coal futures, API2 futures for 2014 delivery traded at $85.80 a tonne on Tuesday, up $0.65 from the previous settlement.

Munoz said Drummond's pay offer came close to what the union would accept, but he said the company would not concede to their demands for a fixed monthly base salary plus hourly wage, instead of by-the-hour wages only.

A major bone of contention has been the fate of 400 port workers, some of whom would be laid off when conveyor belt loading begins at Drummond's port early next year. The union has demanded all those workers be offered alternative positions while the company has promised to retain 70 percent.

Munoz said workers were setting up camp in front of Drummond's installations, where they would remain for the duration of the stoppage. The workers would rotate during the picket, enabling them to return home for some of the time.

"The strike has begun calmly and peacefully," Munoz said, adding workers were stowing valuable equipment and would agree a contingency plan with Drummond to preserve its infrastructure.

A senior labor ministry representative joined last-ditch talks on Monday and Tuesday, underscoring the high stakes of a strike for the government. A month-long stoppage at rival miner Cerrejon in February was one factor behind slower growth in the first three months of the year.

The government has also been confronted since last week with a strike by artisanal and small-scale miners, some of whom have blocked roads, demanding provisions be made for them within the country's mining code.

Glencore's Australia coal mine restructuring puts over 300 jobs at risk

Accordingly to Routers, more than 300 workers at Glencore Xstrata's Collinsville coal mine in Australia were laid off by operator Thiess on Wednesday, as the commodities group moves to take over operations in a bid to restore the mine to profitability.

Glencore said it was unclear how many of the laid off employees it might hire back as it overhauls operations to improve equipment and labour productivity.

The moves come as plummeting coal prices have forced companies in Australia to steadily cut jobs over the last six months to a year.

Thiess, a unit of Leighton Holdings, said it gave pink slips to 321 workers at the mine on Wednesday. The mine currently has a workforce of about 420, of which 400 are Thiess employees, according to Glencore.

Key in determining whether or not workers will be re-hired is whether or not they agree to new terms of employment under Glencore.

"Under the current workplace agreement, it is going to be very difficult for the mine to be viable in the future," Glencore spokesman Francis Derosa said.

The mine, in operation for around 100 years, has been losing "substantial" amounts of money for the last 18 months, Derosa said, adding that until there is an agreement with the employees' union Glencore will not be able to give specific numbers on how many people it will employ going forward.

Stephen Smythe, a spokesman for the union, said the move may be aimed at closing the mine altogether.

"We're fairly optimistic that the mine can have a viable long-term future, but only if the measures that we've identified come to fruition," Derosa said.

Glencore, then Xstrata, announced in February that it would take over the mine's operations from Thiess in August. Glencore acquired miner Xstrata in May.

Earlier this week, Peabody Energy Group the world's largest private-sector coal miner, said it will cut 170 jobs across Australia as it looks to reduce costs amid a global glut in coal supply.

Prices for thermal coal, used for power generation, have fallen over 30 percent in the last two years to under $80 per tonne, while prices for coking coal, used for steelmaking, have shed about 40 percent in the last year to around $130 per tonne.

Glencore's Collinsville mine produced 4 million tonnes of thermal coal and coking coal last year.

Monday, July 22, 2013

Minister's attendance shows high stakes of miner's strike action in Colombia

Colombia's labor minister will join negotiations between U.S. coal miner Drummond and union leaders in a bid to reach a deal on pay that has eluded the sides in two months of talks - an effort that underscores the high stakes of potential strike action for the economy of the world's No.4 coal exporter.

Drummond employs about 10,000 at its two mines and private port. Strike action, which workers have agreed to in principle, could instantly cut output from the key supplier nation to European importers by about a third if it goes ahead.

"If there's no deal, there'll be a strike," Cesar Flores, one of the negotiators from the sintramienergetica union, told Reuters on Sunday, confirming talks would resume around 11 a.m. local time (1600 GMT) on Monday.

Union members voted in favor of strike action last Wednesday and, according to Colombian law, a walk-out must begin within 10 days of workers voting in favor of a stoppage - meaning by the end of this week. Both Drummond and the union have been making use of the 10-day window to continue negotiating.

A stoppage by Drummond workers would mark the second this year in Colombian coal after miners at rival Cerrejon held a month-long strike in February. Two stoppages combined could dent economic growth in 2013 with coal a top export earner for the country.

If a long strike were to ensue, resulting tighter supplies on the world market could also raise the price of European physical coal as buyers contemplate making purchases ahead of winter.

Drummond, which a week ago raised its pay rise offer to 4.5 percent on top of a one-off bonus, has said the union's recent demands for much more were beyond what would be sustainable for it or any other mining company to pay. The union, which has previously demanded a 10.7 percent rise, has since said the company's offer is nearing a level acceptable to it.

A sticking point, however, remained the fate of around 400 workers, many of whose jobs will go when conveyor belt loading of coal replaces the existing, more labor intensive system at Drummond's port in early 2014.

A strike would worsen the government's headaches over labor disputes, as coffee growers threaten a possible strike or protest in mid-August, unsatisfied at how a subsidy to prop up producers facing low prices, is distributed.

Producers of other agricultural crops plan to join them around the same time for a broader farming-sector protest.

* Union must begin pre-agreed strike this week if no deal

* Strike could shut off about 1/3 of Colombia's coal output

Thursday, July 18, 2013

Strike of Miners in Colombia to Protect Artisan Traditions

The Colombian National Confederation of Miners – Conalminercol, declared an Indefinite strike in 80 municipalities in rejection of government regulations to traditional mining practices.

The demonstrations began yesterday in Manizales and Quindío with over 7,000 workers on strike, and with 5,000 more expected in Boyacá and a further 4,500 in Zaragoza, Valle del Cauca. President of Conalminercol, Ramiro Restrepo, predicted peaceful demonstrations, which is likely to gather support from up to 25,000 people across the country.

Miners are today protesting for the legalization of traditional artisan mining, a formalization of employment for greater representation, and that land obtained by multinational corporations be returned to the local communities. These demands come as a response to government regulations of the industry which demand that all mining practices must obtain a permit or license to legally operate.

Colombian President Juan Manuel Santos argued that the policy was to control the amount of illegal mining conducted by organized criminals, who play a greater role in mining than in the narcotics trade. However the regulations also jeopardize the legal status of traditional miners, affecting up to two million families in engaged in small and medium sized mining.

In addition, it gives the government the right to remove and destroy any equipment used in criminal activity, mostly occurred in Gold and Coltan Mining.

The strike came after discussions with the Minister of Mines and Energy, who proposed reforms to the law, but which were rejected the day after by Conalminercol. Strike will continue until “there is a real will of the state” for a change.

A the same time Drummond Colombia Workers Vote to Strike Over Pay Dispute

Workers at Drummond Co., Colombia’s second-biggest thermal coal producer, could strike as early as July 20, after voting not to accept the company’s latest pay offer.

About 3,000 port and mine workers overwhelmingly rejected Drummond’s offer of a 4.5 percent wage increase, Sintramienergetica union negotiator Humberto Suarez said. Union leaders will study the company’s response before deciding whether to stop work, he said.

“We have the votes to strike, but we are waiting to see what the company does,” Suarez said yesterday evening.

A strike would cost the government between 2 and 3 billion pesos ($1.1 million to $1.6 million) per day in lost royalties, according to Mining Ministry estimates, and could act as a drag on the government’s attempt to reverse a slowdown in growth. Coal is Colombia’s biggest export after oil.

The government has called for a meeting with union officials today. The company did not immediately reply to an e-mail seeking comment sent outside normal business hours.

On July 12 Drummond offered workers a three-year pay deal of a 4.5 percent pay rise, followed by an increase of 1.25 percent plus inflation plus in the second year, then inflation plus 1.5 percent. Workers seek an increase of about 8 percent, union official Alberto Solano said July 12.

Exports from Drummond were interrupted in February, after the company’s loading license was suspended after a sinking barge dumped coal into the sea. On Feb. 7, workers at Cerrejon, Colombia’s biggest coal mine, which is joint-owned by BHP Billiton Ltd. (BHP), Anglo American Plc (AAL) and Xstrata Plc (GLEN) went on strike for more than a month in a dispute over pay and benefits.

Colombia’s central bank cited “paralysis” in the Andean nation’s coal industry in its decision to cut its benchmark interest rate half a percentage point to 3.25 percent at its March policy meeting. The Finance Ministry estimates that the slump in coal output cut first quarter economic growth by half a percentage point. Coal is Colombia’s biggest export after oil.

The economy expanded 2.8 percent in the first quarter from the year earlier, compared to 4.8 percent growth in Peru and 4.1 percent in Chile.