Colombia coal exports set to drop as loading ban looms

Reuters

* Drummond loading ban takes effect from midnight, port official says

* Prodeco's neighboring port unable to handle Drummond's coal exports

* Restrictions on country's No. 2 coal exporter support European prices

By Peter Murphy

BOGOTA, Jan 13 (Reuters) - Colombia's coal exports are set to plunge from Tuesday as a ban on ship loading by U.S.-based miner Drummond takes effect, with little immediate hope for a near-term recovery in shipments as a last-ditch workaround was ruled out.

Steam coal shipments are expected to drop by about a third until March after Colombia's government enforced a law that took effect on Jan. 1 only allowing coal exporters to load ships using enclosed conveyor belts and outlawing the use of cranes and barges. Efforts to find an interim solution have been unsuccessful.

Conveyor belts pour the coal directly into vessels' holds, reducing pollution. The flaws of crane and barge loading were laid bare for the public a year ago when a Drummond barge nearly sank and spilled hundreds of tonnes of coal into the Caribbean.

Maria Constanza Garcia, the head of mining regulator ANM, said last week it had proposed that Drummond ship its coal through different ports that already have the belts, such as the public port in Santa Marta and docks owned by Glencore Xstrata miner Prodeco.

But Drummond, Colombia's No.2 coal producer, had not agreed on any such plan.

An industry source on Monday said Prodeco's 21 million tonnes a year Puerto Nuevo port had no capacity to handle more coal. An official at Santa Marta, however, said the port had space available to handle about a quarter of the 80,000 to 90,000 tonnes Drummond mines daily.

Trains serving both Drummond and Prodeco's ports share a common railway line, but use different methods for unloading, which would have complicated delivery of Drummond coal into Puerto Nuevo, the industry source said.

THE BELTS OF MARCH

Drummond will not have its now-mandatory conveyor belt ready until around March and the government has backtracked on a December decision to allow it to keep using cranes and barges until then - a threat to coal supplies that has pushed prices upward.

"Drummond is loading up the last barges" of coal onto waiting ships, said Oscar Mantilla, harbor master in Santa Marta, where Drummond, Glencore Xstrata's Prodeco and Goldman Sachs' miner CNR all have their own port. "They (Drummond) can load until midnight," he said.

The government imposed the loading ban on Drummond last Wednesday, but said it could empty those barges already filled with coal onto the ships that come to collect it.

The Cerrejon joint-venture is the country's second largest coal producer with Prodeco the third biggest and CNR or Colombian Natural Resources, at No. 4.

CNR is expected to begin building its conveyor belt within the next few weeks, a project that is expected to take around 18 months. A source at the company said it was looking into alternative ports to export, but could eventually be forced to halt production at its two mines.

Colombia has eradicated the use of cranes and barges for the loading of coal because of the pollution caused on the Caribbean coast when dust and lumps of coal fall into the sea when being hoisted onto barges and then onto ships moored offshore.

Coal prices in Europe, where most Colombian coal is shipped for electricity generation, have risen in response to the ban. The government said last month Drummond would be able to keep shipping if it paid a fine, then toughened its stance last week.

Drummond affiliate Interocean last week invoked the force majeure insurance clause on coal shipments effective Jan. 13, which would appear to show the chances of a last-minute work-around solution are small.

Coal cargoes for delivery in February into Europe's main terminals in Amsterdam, Rotterdam and Antwerp (ARA) were bid at $85.75 a tonne on Monday afternoon, up slightly from last Friday's close of $85.65 per tonne.

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