Turkish coal supply unaffected by Colombia’s export cut

16 January 2014 15:04 Source:ICIS

A predicted 5m tonne cut in Colombian coal exports in the first quarter of 2014 will not affect Turkish electricity utilities, sources told ICIS.

Around a third of Colombian coal exports will be cut from the Atlantic coal market over the next three months, following Colombia’s decision to temporarily ban US-headquartered coal producer Drummond from loading coal at its port in the Santa Marta region.

But although Colombian coal represents a large chunk of Turkey’s overall coal imports, the quality of coal produced by Drummond does not match Turkish buyers’ requirements because its volatile matter falls outside the government’s legally imposed limits.

Turkish power utilities mainly buy Colombian coal because of its high volatile matter. For example, South African coal has a minimum volatile matter of 22%, compared to Colombian coal with a minimum 31% volatile matter, according to the standard coal trading agreement, determining the types of coal, which can be sold on a DES ARA contract basis.

Volatile matter determines how easily coal self-combusts but in terms of utility requirements, it is one of the coal specifications which most commonly determines the design of the boiler.

However, in the case of Turkish buyers, their appetite for coal with a specific volatile matter stems from the government’s legal restriction, determining the exact specifications imported coal must match.

Sources told ICIS large Turkish buyers continue to secure most of their supply in fixed-term agreements for coal from Colombia’s largest producer Cerrejon, which has a volatile matter of 32.5-33%.

Drummond did not respond to an ICIS email requesting information regarding the company’s Colombian coal specifications but market participants said its volatility was above the maximum 40% allowed by the Turkish government.

Because only Drummond’s loading activities were affected by Colombia’s direct ship-loading infrastructure requirement – which came into effect on 1 January 2014 – Turkish supply will continue uninterrupted, sources stressed.

Drummond has invested €350m in the infrastructure but fell behind with the works after 75 days of strikes. In December, the Colombian environment ministry said that Drummond would be able to continue to load ships without the necessary infrastructure but would be charged a daily fine for breaching the law. However, the government reversed its decision on 9 January, banning Drummond’s loading activities until the required infrastructure is in place – most likely at the end of March. Manca Vitorino

By Manca Vitorino