Fri Jul 27, 2012
By Jack Kimball and Jacqueline Cowhig
BOGOTA/LONDON, July 27 (Reuters) - Colombia's Drummond Coal, one of the country's two biggest exporters of thermal coal, will be able to load only three out of five ships berthing in the next few days because the Fenoco rail strike has shrunk port stockpiles, Colombian logistics sources said.
Drummond may have to declare force majeure within a week unless customers agree to defer shipments, they said.
Most of Drummond's customers are utilities and traders in Europe.
Colombia is the world's fourth-largest coal exporter and Fenoco transports coal to ports for its shareholders Glencore International Plc's Prodeco unit, Drummond International and Goldman Sachs Group Inc's Colombian unit.
Drummond was unavailable for comment.
Drummond as of Friday had about 100,000 tonnes of coal in stockpiles at the ports and five ships due to arrive to start loading before the end of July, they said.
"Drummond has been loading at a slower rate than usual but there was not enough coal at the port on Thursday to load all the vessels there," one source said.
"There will definitely not be enough coal to load at least one ship due to arrive on July 29, they do not have big stockpiles at the ports," another source said.
If the Fenoco strike does not end within days, Drummond could be compelled to declare force majeure, they said.
Workers at Fenoco, Colombia's main coal railway, went on strike on Monday over pay and working conditions, threatening to paralyse more than half the country's shipments.
Fenoco is trying to get the strike declared illegal, a Fenoco official said.
"Every time the company says that the strike is illegal, it's a form of distraction," said Ricardo Machado of the Sintraminergetica union.
The rail operator has filed a suit with the Colombian courts to invalidate the strike but it could take up to six months for a decision to be reached, Fenoco said.
The 2009 rail strike which lasted 27 days was declared illegal months after it ended.
Fenoco says it believes there were irregularities with the voting process this year. The union denies the allegation and contends it was all fully legal.
But Fenoco refuses to negotiate with the unions until they agree to move 10 coal trains carrying around 60,000 tonnes of coal - less than one Panamax cargo - because of safety concerns.
Colombian coal contains a high percentage of oily volatile materials which make it prone to spontaneous combustion when stored for long periods.
"If we reach an agreement on moving the trains that are stuck we will be prepared to start negotiating. That doesn't mean we're going to agree on everything, but we will start negotiating," Fenoco President Peter Burrowes told Reuters.
Drummond's European customers were unfazed by the prospect of shipment delays or cancellations because they can easily be accommodated in the current oversupplied market.
"Drummond in the past has been quick to declare force majeure but this time I expect they'll just delay, even by months won't be a problem," one customer said.
Drummond would be reluctant to cancel sales made at higher fixed prices than current levels, traders said.
European delivered coal prices have dropped by 30 percent from over $120 a tonne in Q4 to $85-90 this month because supply growth has outpaced demand, shrinking producers' margins and triggering output cuts in high-cost countries.
Labour cost inflation has been one of the major factors behind narrowing margins in most major coal exporting countries.
By Jack Kimball and Jacqueline Cowhig
BOGOTA/LONDON, July 27 (Reuters) - Colombia's Drummond Coal, one of the country's two biggest exporters of thermal coal, will be able to load only three out of five ships berthing in the next few days because the Fenoco rail strike has shrunk port stockpiles, Colombian logistics sources said.
Drummond may have to declare force majeure within a week unless customers agree to defer shipments, they said.
Most of Drummond's customers are utilities and traders in Europe.
Colombia is the world's fourth-largest coal exporter and Fenoco transports coal to ports for its shareholders Glencore International Plc's Prodeco unit, Drummond International and Goldman Sachs Group Inc's Colombian unit.
Drummond was unavailable for comment.
Drummond as of Friday had about 100,000 tonnes of coal in stockpiles at the ports and five ships due to arrive to start loading before the end of July, they said.
"Drummond has been loading at a slower rate than usual but there was not enough coal at the port on Thursday to load all the vessels there," one source said.
"There will definitely not be enough coal to load at least one ship due to arrive on July 29, they do not have big stockpiles at the ports," another source said.
If the Fenoco strike does not end within days, Drummond could be compelled to declare force majeure, they said.
Workers at Fenoco, Colombia's main coal railway, went on strike on Monday over pay and working conditions, threatening to paralyse more than half the country's shipments.
Fenoco is trying to get the strike declared illegal, a Fenoco official said.
"Every time the company says that the strike is illegal, it's a form of distraction," said Ricardo Machado of the Sintraminergetica union.
The rail operator has filed a suit with the Colombian courts to invalidate the strike but it could take up to six months for a decision to be reached, Fenoco said.
The 2009 rail strike which lasted 27 days was declared illegal months after it ended.
Fenoco says it believes there were irregularities with the voting process this year. The union denies the allegation and contends it was all fully legal.
But Fenoco refuses to negotiate with the unions until they agree to move 10 coal trains carrying around 60,000 tonnes of coal - less than one Panamax cargo - because of safety concerns.
Colombian coal contains a high percentage of oily volatile materials which make it prone to spontaneous combustion when stored for long periods.
"If we reach an agreement on moving the trains that are stuck we will be prepared to start negotiating. That doesn't mean we're going to agree on everything, but we will start negotiating," Fenoco President Peter Burrowes told Reuters.
Drummond's European customers were unfazed by the prospect of shipment delays or cancellations because they can easily be accommodated in the current oversupplied market.
"Drummond in the past has been quick to declare force majeure but this time I expect they'll just delay, even by months won't be a problem," one customer said.
Drummond would be reluctant to cancel sales made at higher fixed prices than current levels, traders said.
European delivered coal prices have dropped by 30 percent from over $120 a tonne in Q4 to $85-90 this month because supply growth has outpaced demand, shrinking producers' margins and triggering output cuts in high-cost countries.
Labour cost inflation has been one of the major factors behind narrowing margins in most major coal exporting countries.
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