Industry Trend Analysis - Recent Strike Leads To BMI Production Downgrade - DEC 2013

BMI View: We are revising down our 2013 production forecast for Colombian coal production after a labour strike against Drummond lasted for approximately seven weeks. The strike, which ended in mid-September , led to production and exports to be curtailed . Given that Drummond produced 26mnt, or 29%, of Colombia's coal production in 2012 , the strike is likely to have a significant impact on total 2013 production . We are also upgrading our 2014 production forecast as total country production reaccelerates from 2013 levels.

The latest strike , which ended in mid-September, was carried out for seven weeks by mine, port, and rail workers of Drummond . It followed a strike in Q113 by workers at Cerrejón , a venture between BHP Billiton , Anglo American , and Glencore Xstrata . During the most recent strike , Drummond declared a partial force majeure on certain coal shipments that had been contracted previously. The firm's inability to deliver coal during the strike reduced both total exports and royalty payments to the Colombian government.

The government maintains that its previous forecast for 94mnt of coal production in 2013 may still be met, though it has not ruled out later revisions. We believe this represents too optimistic a scenario, and have thus revised our 2013 total forecast to 89mnt, representing a small decrease over 2012 totals. Our more downbeat view is based on Drummond's market share, total 2012 and H113 coal production, and the length of the strike. The negative growth in cumulative exports in July reflects the hit thermal coal exports took at the start of the strike. Since over 90% of the coal Colombia produces is exported, a significant decrease in the growth rate of exports can be seen as a proxy for falling production.

Coal Export Trouble
Colombia - Cumulative YTD Coal Exports & Month-on-Month Growth (%)

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