Industry Trend Analysis - Colombia: Latest Data Confirms Positive Outlook - SEPT 2014

BMI View: Colombia's coal output will see continued growth to 2018 . The government is likely to seek continued balance between mining sector expansion on one hand, and local social and environmental concerns on the other. Nevertheless, coal miners will face both a subdued global price environment and continued operational challenges in the years ahead.

The Colombian government announced this week that the country's coal production rose to 47.3mnt in H114, marking a 14% y-o-y increase and reaffirming our positive sector outlook. We forecast average annual coal production growth of 4.3% to 2018, with aggregate output hitting 105mnt. While we forecast global thermal coal prices will remain subdued to 2016, averaging USD74/tonne in 2015 and USD76/tonne in 2016 ( see ' Thermal Coal To Average USD74/tonne In 2015, ' August 19), we expect Colombia to maintain its status as the world's lowest-cost thermal coal producer in the years ahead, encouraging production growth by miners Drummond and Cerrejon, the latter being a partnership among Anglo American, BHP Billiton, and Glencore Xstrata ( see ' Thermal Coal: Supply Overhang Here To Stay , ' August 21). The average cash costs for Colombian thermal coal, excluding transport and royalty charges, are around USD44/tonne.

We expect Colombia's coal exports will growth in the years ahead, enabled by the USD5.2bn expansion of the Panama Canal. The canal project, set to be completed by 2015, will allow greater volumes of coal to be transported to key coal consumers in Asia, with significant time and cost-savings from the shorter routing. Indeed, nearly 91% of the country's coal production is currently exported.

Colombian Miners Sitting Comfortably
Colombia - Thermal Coal Average Cash Costs (USD/tonne)

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