Oct 29 (Reuters) – There are several reasons why coal prices in Asia are unlikely to rally much in the coming years, but the most compelling one is also likely one of the most obscure: Colombia.
Why should a South American country that hasn’t exported much coal to Asia recently provide the cap for prices?
Because as soon as Asian coal prices rise to a level that would make sense for Colombian miners to resume exports, they will, and they have as much as 25 million tonnes of spare capacity in their production and export chain.
It’s true that Colombia and other producers in the Americas, such as the United States and Canada, have been largely forced out of the world’s biggest coal market by the relentless decline in prices.
But while U.S. and Canadian miners may struggle to resume exports to Asia even if prices do recover, given they have been closing pits, their Colombian counterparts are largely ready to increase output.
The only thorn in their side is a battle over noise with residents that has restricted volumes on the Fenoco rail line linking the main mining region with ports, and put a question mark over the building of a duplicate track.
But the problem doesn’t seem intractable and given the support of the Colombian government, it’s likely that a deal will be worked out to allow increased capacity on the railway.
Even without the expansion, Colombia, the world’s fourth-largest coal exporter, still has the ability to supply millions of tonnes to seaborne markets.
At what price can Colombian coal reasonably expect to return to Asia?
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