February 19, 2013 / 8:22 PM / 5 years ago

RPT-UPDATE 1-Colombia's Cerrejon calls limited force majeure as coal strike bites

* Cerrejon workers have been on strike since Feb. 7
    * All major Colombian producers suffering from problems
    * Colombia is the world's fourth-largest coal exporter

    By John McGarrity and Jack Kimball
    LONDON/BOGOTA, Feb 19 (Reuters) - Colombia's largest coal
exporter Cerrejon has declared force majeure on at least some of
its cargoes as a strike looks set to enter a third week, its CMC
marketing arm said on Tuesday.
    Around 10 vessels have been unable to load coal since
workers downed tools on Feb. 7 in the mine's first strike since
1990, CMC Chief Executive Howard Gatiss said.
    A joint venture between Anglo American, BHP Billiton
 and Xstrata, Cerrejon accounts for around 36
percent or 32 million tonnes of Colombia's annual output, and
supplies power generators mainly in Europe.
    "Force majeure has been declared on at least some of these
vessels. As long as the strike continues we are unable to comply
with our obligations to customers," he said. 
    "No-one knows how long the strike will continue and we are
in discussion to reschedule shipments."
    Force majeure allows a company to suspend contractual
obligations in the face of unexpected events including strikes
and natural disasters.
    A market source said that Cerrejon had declared force
majeure on about 600,000 tonnes of coal, effecting end-users in
Spain, the United States, Canada, and Turkey among others.
    Preliminary talks between unions and management stalled at
the weekend, thwarting attempts to negotiate a deal on wages and
benefits. No new talks have been scheduled.
    Port data seen by Reuters shows utilities including
Germany's Steag, Britain's Scottish and Southern Energy, and
Sweden's Vattenfall as customers for 15 ships that
were scheduled to load at Puerto Bolivar between Feb. 7-18.  
    Some of those vessels have now set sail away from Latin
America, according to shipping data tracked by Reuters, 
possibly in search of other cargoes after declaration of force
majeure, said a coal analyst with a trading house.
    A loading ban at Colombia's second-largest exporter,
Drummond, imposed on Feb. 6 due to an environmental issue, means
that utilities won't be able to pick up alternative supplies
from Colombia's other main coal port, another trader said.  
    Drummond International, an 80-20 joint venture with Japan's
Itochu Corp, has not declared force majeure, according
to a source close to the company.
    CMC's Gatiss said he could not comment on whether buyers or
sellers will ultimately have to pay the costs of chartering a
ship while it is unable to take delivery.
    "Each sales contract has slightly different terms," he said.
    So-called demurrage costs could amount to $10,000-20,000 a
day, coal shipping sources said.  
    Prices for physical coal delivered into northwestern Europe
for March bid at $88.25/tonne on Tuesday, up from $87.10 at the
close on Monday and around $2 higher than before the strike. 
    Traders, however, said plentiful supplies from the United
States, Russia and South Africa, and weak demand for electricity
in Europe, have averted major tightness in the market. 
    The majority of Colombia's coal goes to United States and
Europe, but the industry has increasingly looked to diversify
into Latin America and Asia given planned shut-downs of
coal-fire plants in its main destination points.
    Colombian coal exports fell 4.7 percent in 2012 to 77.4
million tonnes from 81.2 million tonnes in 2011 hit by labor
disputes while the value dropped 7 percent to $7.8 billion,
according to statistics agency data published on Monday.
    The sector faced a series of strikes last year at its main
coal railway and a mine owned by Glencore's Prodeco unit.
    This year, the rail line, known as Fenoco, has been ordered
to stop running trains at night through the northern Cesar
province to allow residents to sleep. Fenoco's shareholders
include Drummond, Glencore and a Goldman Sach's affiliate.
    The ban effectively cuts shipment of a quarter of coal
output from Cesar, Colombia's largest coal-producing region.
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