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By Oleg Vukmanovic
LONDON, Jan 9 (Reuters) - European physical coal prices gained sharply on Thursday as Colombia unexpectedly halted exports of coal by U.S.-based miner Drummond until it sets up a new ship loading system, boosting Europe's reliance on South African supplies.
The price of coal for delivery in March into Europe's main terminals in Amsterdam, Rotterdam and Antwerp (ARA) climbed $3.20 a tonne higher to $86 a tonne at 1550 GMT.
Colombia is an important coal supply source for European utilities in Germany and Britain, and its decision to suspend exports by Drummond took traders by surprise.
"I thought this was the least likely outcome as they're throwing away royalties and money," a coal trader said, referring to coal export revenue collected by the government.
The decision has slashed Colombian coal exports by a third until Drummond sets up a direct-loading system using enclosed conveyor belts, replacing the existing barge-and-crane method which causes greater air and sea pollution.
Drummond is expected to have the new system in place by around March, although some sources say it could take longer.
The decision marked a U-turn by the government after it said last month it would fine Drummond - the country's second-biggest miner of coal - on a daily basis from Jan. 1 when the new loading rules took effect but would not stop it from exporting coal.
ARA coal for month-ahead delivery failed to trade on Thursday as utilities and traders withheld volumes from the market despite a sharp rise in bids.
The February ARA contract settled on Wednesday at $84.75 a tonne. An active bid for February ARA coal at $86 a tonne, sharply higher than previous day levels, has not yet received an offer, according to the globalCOAL trading platform.
A surge in deliveries of South African cargoes from the Richards Bay terminal, arranged by a major trading house last year, is expected to replace some of the lost Colombian supply, stemming sharper price gains.
The CMC Coal Marketing Company, which is the sales arm for Colombia's biggest coal exporter Carrejon, has scheduled an 8-day shutdown of its port from Jan. 28.
The shutdown should not affect Colombian exports however given that it was planned, and CMC's customers will load their volumes before or after the port closure.
ARA UNKNOWNS
The question traders are asking now is how much coal can Europe expect to receive from South Africa and whether the United States can step in to replace lost Colombian supply.
One industry source said he expected U.S. thermal coal exports to drop significantly this year compared with 2013 as rail, freight and port costs makes deliveries to Europe increasingly uneconomic.
But if ARA prices recover to around the $90 a tonne mark traders believe it could attract U.S. cargoes back into Europe.
The number of shipments expected to arrive from South Africa is also being keenly monitored by traders, who say it may help determine the extent of future price moves.
South African cargoes for February delivery traded $2.75 a tonne higher at $83.50 a tonne on Thursday, while the January contract gained $1.70 a tonne to $84.25 a tonne.
(Reporting by Oleg Vukmanovic; editing by David Evans)
Keywords: MARKETS COAL/PHYSICAL