HardAssetsInvestor.com had the opportunity to speak recently with Howard Gatiss on one of his fleeting visits to New York. Howard heads up CMC, the exclusive marketer of coal from the Cerrejón complex in northern Colombia, the world's largest coal export mine.

Here are just a few of the topics discussed.

HardAssetsInvestor.com (HAI): Who are the major exporters of coal, say, the top three or four countries?

Howard Gatiss, CEO of CMC (Gatiss): I think the first thing to clarify is that there are two fairly distinct markets: the Atlantic market and the Pacific market. And we'll talk in a moment about how they interact one with another. If we take the Atlantic market first, then the Atlantic market, as conventionally defined, accounts for something like 225 million metric tonnes.

In the Atlantic market, the main exporters are South Africa and Colombia. So, if we bear in mind this figure of 225 million tonnes, of that 225 million, roughly 75 million comes from South America, of which about 68 million is Colombia and 7 million is Venezuela. Colombia dominates in South America.

The other massive exporter into the Atlantic market is South Africa, which exports around 60 million, though in 2008, some 15 million went east, reflecting the rapid growth in the Pacific markets. So we have 75 million from South America and we have 45 million from South Africa. That gives us 120 million tonnes. The next biggest player in the Atlantic market is Russia. Russia does about 42 million tonnes. So that takes us to about 162 million tonnes. Those are the three main players.

Other players, which are smaller, are the U.S., which tends to be a marginal player; Poland, [whose coal role] has been diminishing quite significantly; and then coal imported into the Atlantic market from the Pacific.

The big Atlantic buyers are the big buyers in Europe. More than 80% of this 225 million is taken by Europe. And if we define Europe in its widest sense - that's including Morocco, Israel and Turkey - then the European market is about 185 million of that 225 million tonnes. The remainder is Canada and the U.S., and a small amount into Central America and the Caribbean.

So what we can see from this is that the Atlantic market is almost self-contained, but structurally in deficit. That is, in any one year, the precise amount varies according to what's happening in those individual countries and according to the weather, hydro, gas, shipping - and all that sort of thing. But, basically, in very broad terms, the Atlantic market is self-sufficient except for a structural deficit, which is somewhere between 20 and 30 million tonnes a year.

If we look at the Pacific market, which is the other side of the coin, then the massive players are Indonesia and Australia. The Pacific market is much bigger than the Atlantic market, with an order of magnitude of 360 million tonnes. In the Pacific, there are, essentially, the big blocks of China producing for itself, Australia producing for itself, South Africa producing for itself (and, of course, the U.S. producing for itself).

Since the total traded market is the Atlantic, plus the Pacific (225 million tonnes, plus 360 million, a total of nearly 600 million), in very rough terms, what's traded is only about 10% of what's produced. If we go back to the Pacific, then we have roughly 115 million tonnes being exported from Australia, about 180 million tonnes from Indonesia, and smaller amounts from China, Russia going east, South Africa going east, and so on.

The biggest importer is Japan, which accounts for about 125 million tonnes. The next biggest importer is South Korea, which is about 75 million, then Taiwan, which is about 55 million tonnes and then the rest is a scattering of other Pacific markets. In very rough terms, therefore, the total Asian demand is about 360 million tonnes, while total Asian supply is about 380 million tonnes. So what you have then again is that, structurally, the Pacific market is also fairly self-contained, but structurally long. In general terms, shipping costs mean that, on the whole, except on certain occasions and at certain moments, it's not worth bringing Pacific coal around to the Atlantic, and it's not cost-effective to take Atlantic coal around to the Pacific.

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