Global Coal Market Facing Production and Cost Concerns

Coal production shortages in Colombia and soaring prices in China may appear to have nothing in common, but this global uncertainty may be indicative of a world that is slowly moving away from coal dependence.

As an increasing number of nations look to green technology and environmentally friendly mining activities, the future of coal is becoming increasingly uncertain.

Colombia, the world’s fifth-largest coal exporter, reported its second Q1 loss in a row on Wednesday (May 23). This year, the South American country produced just 19.6 million tonnes of coal during the period, down over 11 percent year-on-year.

For the full 2017 year the country’s coal output clocked in at 89.4 million tonnes, down from the 90.5 million tonnes seen in 2016. The decrease in production has been pinned partially on a decline in global coal prices, which makes extraction less lucrative.

Another factor in Colombia’s dwindling production numbers are growing calls from local governments and citizens to shutter mines or ban the industry as a whole in certain jurisdictions.

“The regions and territories where extractive activities take place are plagued with land use conflicts, which have not been solved due to lack of clear rules,” Former Minister of Mines and Energy Amylkar Acosta told the Colombian press.

Acosta pointed to a recent change in royalties for municipalities, which have dropped from 70 percent to a drastically reduced 9 percent, as part of the problem. “This triggers discontent because the communities do not see a benefit from mining and that dissatisfaction triggers protests, blockades and other problems,” he said.

Colombia isn’t the only country dealing with coal woes. As mentioned, China is dealing with its own issues: oversupply and unsustainable prices.

Earlier this week, the Chinese government ordered the country’s utility companies to stop stockpiling thermal coal, while simultaneously telling miners to slash prices. This came after thermal coal futures fell more than 4 percent in one day, the steepest drop the sector has witnessed since late 2016.

As part of an announcement from the National Development and Reform Commission (NDRC), utilities were urged to cease buying coal in the next two to three weeks, though that too could cause problems.

“NDRC has ordered power plants to stop buying coal as of now. But pent-up demand from this month and expectation of tight rail transportation capacity in summer could lead to supply crunches,” a source told Reuters.

The global price drop has already begun to affect nations around the world. South African miners are having a hard time finding buyers for their coal, an issue that has been compounded with the US, Russia, Colombia and now China selling for bargain-basement prices on the world market.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.