Industry Trend Analysis - Coal: Growth Ahead, Yet Risks Linger - MAR 2015


BMI View: The Colombian government will seek a continued balance between mining sector expansion on one hand, and local social and environmental concerns on the other , ultimately leading to consistent coal output growth . Nevertheless, coal miners will face both a subdued global price environment and continued operational challenges in the years ahead.

We forecast continued growth in Colombian coal output over the next five years, with average annual growth of 4.3% in 2015-2019. Though the country saw thermal coal production fall slightly in 2013 owing to two major labour strikes and logistics disruptions, we estimate 2014 production saw positive year-on-year growth. Furthermore, we expect exports will grow in the years ahead given that the country consumes little of its domestically produced thermal coal. Recent market reports indicate that the country's thermal coal exports totalled 75.1mnt in 2014, up from 73.7mnt in 2013.

Despite subdued global thermal coal prices and our expectation that prices will see only modest gains in the years ahead after bottoming out around USD60/tonne in 2015, we expect Colombian production growth due to the country's relatively low costs. The Cerrejon mine, a joint venture among BHP Billiton, Glencore Xstrata, and Anglo American, will remain the largest producer in Colombia in the quarters ahead, accounting for around one third of total output. The company reported in Q115 that 2014 production rose 2.1% y-o-y, rising to 34mnt from 33.7mnt in 2013. Total exports in 2014 increased to 34.2mnt, as well. Drummond, the second-largest miner, has set 2015 production guidance at over 30mnt. Colombia's third largest producer, Prodeco, saw production grow 6.3% y-o-y in the first three quarters of 2014 to 15.1mnt. The company is owned by Glencore.

Europe To Remain Biggest Customer
Colombia - Coal Exports By Destination, 2013 (tonnes)

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