Colombia's second-largest coal producer Cerrejon will cut thermal coal production by 5-10mn t with immediate effect. This brings its full-year estimate to 11-16mn t for 2025, the Glencore-owned firm said today.
The main reason for the reduction is "unsustainable prices for thermal coal transported by sea". Cerrejon produced 19mn t of steam coal in 2024, which means output could fall by 18.75-42pc on the year.
Cerrejon has implemented numerous initiatives to respond to the current challenging market conditions, but said the decision to reduce production will help ensure the sustainability of operations and its ability to continue generating revenue for the region and the country.
Thermal coal demand has become increasingly focused on Asian markets, including South Korea, India, Japan and China, and freight costs for Colombian coal to reach those markets of around $37/t are considerably higher than the $16-17/t to reach Colombia's traditional markets, such as Europe and Turkey.
At the same time, international coal prices have dropped, further reducing Colombian coal's margins, Cerrejon president Claudia Bejarano said last week in Cartagena at the Colombia Genera conference.
"We are losing our competitiveness completely," Bejarano said, adding that coal demand in natural markets for Colombia such as Europe is dwindling
Argus' fob Puerto Bolivar NAR 6,000 kcal/kg thermal coal assessment, which forms part of the Colombian API 10 benchmark, was assessed at $85.20/t at the end of last week, down from $93/t at the start of the year — it was as high as $102/t as recently as November.
The drop in production will be followed by a reduction in the workforce, a source familiar with the matter said. The company said production cuts will not affect Cerrejon's current social or environmental commitments.
The president of Colombian mining agency Alvaro Pardo told Argus that Colombia's thermal coal exports increased by 8.8pc in 2024, but revenues at the country's largest producers declined by 25pc, reflecting the difficult market conditions amid low coal prices and tight margins, Pardo said.
Pardo said market conditions will be a factor in ending coal production over the long term, not the government.
The government is concerned about falling international thermal coal prices because the operators of the country's large open-pit mines, including Drummond and Cerrejon, may hand back the coal titles to the government, as Glencore did with its Prodeco mine titles in 2021.
