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Colombia coal output to stall in 2016

Colombian coal production will stall in 2016 from last year to remain below 90m tonnes and struggle to grow beyond that through 2018 as companies cut investment while labor trouble looms.

Output in 2015 will be between 86.3mt and 88.3mt, the Colombian Mining Association said, below the official target of 90m tonnes, adding that investment cuts “are a bad omen” for government expectations of breaking the 100m tonnes goal by 2018. “For now, even reaching the 90m tonnes goal has become a slippery feat,” the statement said.

Cerrejon and Drummond, the country’s two biggest producers, are also being affected by the coal price slump. Cerrejon “changed plans and instead of betting on a production increase, the company is betting on keeping a stable output of around 33m tonnes” in 2016. In the case of Alabama-based Drummond, “sources” told them that lower prices “have forced” lower investment, particularly on new projects.

“The balance of the Atlantic market is crucial and for Colombia it’s a fair to say they should not see any growth in their sales this year,” said Hans Gunnar, a senior analyst in Nena.

In terms of investment, Gunnar said Colombia is just joining a global trend. “Every miner is cutting into investment budget and trying to improve productivity.”

“My expectation is that every miner will try to produce at least as much in running operation, but cut as much as they can in investment. But the impact of this will not be noticeable until 2018 and 2019.”

Cerrejon woes

Cerrejon, the biggest producer, is involved in negotiations with Sintraime, its biggest union. The two sides have given themselves until February 20 to reach a deal. The company is cutting costs while employees demand increased spending.

Cerrejon though appears to be gearing for the long haul. The company will maintain its production around 33m tonnes for 2016 and 2017 in response to a low price environment, a source familiar with the matter  said.

“The overall perspective is that with prices at these levels there is no economic incentive for higher levels of production,” the person said on condition of anonymity.

The board of Cerrejon, owned equally by BHP Billiton, Glencore Xstrate, and Anglo American, also decided to against further investments to increase exports in this price juncture, the person said.

Cerrejon has all but completed an 8m tonnes, US1.3 billion capacity expansion to 41m tonnes it started in 2011. Only minor work and the purchase of additional equipment, like coal trucks, is pending.

The investment and production outlook will depend on a price recovery, the person said.

A version of this was published in Montel