After a year of unprecedented industrial unrest, the Colombian Government believes that it will, insofar as is relevant to the operations of its coal mining sector, not only be able to retain its ranking as the world’s fourth largest exporter-producer, but also be able to punch above its weight.
“We are going to make every effort to overcome the impact that the [labour] conflicts have had on production,” mines and energy minister, Amylkar Acosta, says. Following the opening of the Cerrejon coal mine group’s US$ 550 million, 21 million tpa Puerto Nuevo terminal, other projects by the private sector and in co-operation with the government also appear to be setting Colombia well on the way to becoming a low-cost and efficient world player.
Passing through a storm
Growing worker dissatisfaction over wages and social conditions have been fostered by remnants of the former opposition Revolutionary Armed Forces of Colombia (FARC). The movement, largely defeated by former President Alvaro Uribe, was further contained by his successor, Juan Manuel Santos. Santos gained popularity as he tracked and killed many of FARC’s former leaders, as they tried to once again unsettle the country by bringing the prominent mining sector to its knees. The FARC spread a message to the workers that the time had come for them to press for social equality. The level of protest was the highest for many years, observers said. Santos, confident he would win, countered left-wing critics: “We are passing through a storm,” he said.
In 2012, 22 workers lost their lives in strike-inspired violence, but by the end of October this year, no deaths due to worker unrest had been reported.
Over 2013, Cerrejon has so far lost one month’s production. Number two producer, Drummond, has lost 53 days in July and August. The railway linking the Cerrejon mine to the Port of Puerto Bolívar was bombed in October but the company says neither exports nor production were affected. Since then, the unrest appears to have subsided.
Who was better off?
Industrial analyst, Sofia Leon, says the FARC dissidents exploited the worker’s legitimate grievances, particularly what many observers see as Colombia’s persistent inequality, recently reported as the worst in South America. Her remarks are backed by the most recent Gini index, which rates the country at 56 (zero equals perfect equality, 100 total inequality). The minimum wage in the country has grown 83% over the last 10 years, while in Brazil it increased by 211%.
“The mining sector has been growing in importance in Colombia,” Leon says. “Workers feel it’s the right moment to demand their rights.”
Although the unrest in the mining sector became the prominent news story, reports about conditions in other sectors of the economy, such as agriculture, continue to raise questions about what gave the FARC dissidents their opportunity to instigate more unrest. Quoted examples indicate truck drivers in the non-mining sectors can earn US$ 2000/month, while those at Cerrejon take home US$ 80 000/year plus some bonuses. However, mining company Drummond is reported to have labelled its own 5% pay hike offer to strikers “the best ever made in the coal industry in Colombia.”
Bullish bets on 2013
Colombia has the largest identified coal resource base in South America, with a stated reserve of 6.9 billion t. The country is the world’s fourth-largest producer of export coal.
Although estimates of production over 2013 have varied, the latest report is that it will hit its target of 94 million t. However, research from international bank Morgan Stanley suggested shipments will miss this total by approximately 1.3%.
Production over the first nine months of 2013 at 60 million t was down by 11.2% on the first nine months of 2012 due to the unrest and rail disruptions. However, this does show continuing improvement over the year: at the end of Q1 it was down 21.4%. Analysts estimate that the value of coal exports over Q1 decreased by 45%, which contributed to a 9.5% drop in the value of the country’s total exports for that period.
Top-producer Cerrejon is no longer as confident as it has been over its 2013 production. The groups said in November that meeting its target of 34 million t would be more difficult than it had anticipated. The target is marginally – 600,000 t – down on actual production over 2012.
Most of Colombia’s coal goes to the US and Europe; however, the country is seeking to diversify its markets into Latin America and Asia. According to analyst, Fabio Gabrielli, Mercuria Energy Trading, Colombia is among the countries that will continue to increase production, despite the unrest and the current depressed international thermal coal prices.
Coal investors remain cautious
After the major slump of 2012, Colombia’s coal industry was close to full capacity by the end of Q1 2013 – and beginning to make itself felt in the market. With Europe oversupplied, the availability of more Colombian coal caused a depression in prices. European coal futures dropped to their lowest since the start of the 2008 financial crisis. “That they are still at the lowest level since the end of the crisis can be attributed to the return of Colombia and Mozambique to close to full capacity production,” traders say.
However, the financial community is not yet fully onboard. Investment in Colombia over the 10 years ending December 2012 was up eightfold, annual growth over the same period was 4.8% with the peso up by 52%. However, the as-yet minor ongoing labour disputes continue to make some potential investors wary. CMC Metal’s Raphael Biderman commented: “I am definitely cautious about investing in the country. It does not matter how rich a country is in resources, if it does not have a good business environment, you can forget it.”
This article first appeared in the December issue of World Coal.
Written by Barry Baxter.
Read the article online at: https://www.worldcoal.com/special-reports/16012014/weathering_the_storm_411/