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Euro Coal-Physical prices rise on likely Colombian strike
July 17, 2013 / 5:12 PM / 4 years ago

Euro Coal-Physical prices rise on likely Colombian strike

* Workers at Colombian producer Drummond vote on strike action

* ARA prices for August in sharp contango to prompt delivery

* Germany burns less coal so far in 2013 compared with last year

By John McGarrity

LONDON, July 17 (Reuters) - European physical coal prices gained on Wednesday as traders reacted to signals from a Colombian mining union that it will strike next week at operations owned by U.S. producer Drummond, which exports around 450,000 tonnes a week.

Prices for coal destined for Amsterdam-Rotterdam-Antwerp (DES ARA) and delivery in August last traded at $75.00 a tonne, up $0.70 from Monday’s late trading level, with 100,000 tonnes changing hands in the contract.

The September contract fell $0.10 from Tuesday’s late trade of $76.50, suggesting that traders think the strike won’t last more than a month.

The prompt, but untraded, July contract settled at $71.80, implying a strong contango for August coal.

There was scepticism among some participants that a stoppage would have a major impact on the market due to abundant supply from other producers.

However a stoppage in Colombia could coincide with the traditional uptick in demand from European power generators in the third quarter ahead of winter.

“I think a strike at Drummond is likely to be resolved within a week if it actually goes ahead. There’s likely to be a face-saving deal done is acceptable to miners and avoid a big loss of revenue to the company and royalties to the government” said a trader that buys coal from Drummond.

Edgar Munoz, vice president of the union representing workers at Drummond, told Reuters in an interview that the majority will vote on Wednesday for a strike because they are seeking better proposals from the company.

If Drummond workers decide to back industrial action, the stoppage would have to begin after Friday and before the end of next week, to comply with local labour laws, Munoz said, but it could still be called off if management made a satisfactory improved offer beforehand.

In February a month-long strike at Colombia’s biggest producer Cerrejon cost it around 3.5 million tonnes of lost output, disruption that was reflected on Wednesday in production results released by BHP Billiton , a partner in the South American joint venture.

The diversified miner said its output of thermal coal in the second quarter was almost 20 million tonnes, up a quarter from the previous three months as Cerrejon’s production returned to normal.

An increase in output at the company’s Australian mines in the April-June quarter was a further indication that major producers are churning out more coal despite weaker prices and faltering demand in China following Rio Tinto’s output increase in recent months.

In the market for coal futures, API2 futures for 2014 delivery traded at $86.75 a tonne, up $0.50 from the previous settlement.

Prices are just a couple of dollars above a three-and-a-half year low seen last month.

Demand for coal in Germany, one of the EU’s biggest importers of the fuel, is likely to be lower this year compared with 2012, according to coal lobby VDKI.

“The European market is absolutely oversupplied and consumers are only buying short-term,” said Erich Schmitz, managing director of the Hamburg-based lobby, at a press conference.

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