Exxaro bullish over coal demand
• US-China trade war fails to dampen outlook as global demand increases
Coal and heavy-minerals miner Exxaro Resources has a bullish outlook for global coal demand for the rest of the year, despite recent volatility due to US-China trade conflict.
Coal and heavy-minerals miner Exxaro Resources has a bullish outlook for global coal demand for the rest of the year, despite recent volatility due to US-China trade conflict.
Strong economic activity during the first half of 2018 remained supportive of commodities, with the global demand for coal expected to continue to outstrip supply, Exxaro said in a pre-close message on Thursday.
Despite the geopolitical tension and supply-side reform initiatives in China, Exxaro expects a broadly balanced market and sustainable iron ore prices in 2018, with Chinese steel production having remained strong during the past six months.
“Overall, we expect the international market to remain bullish as demand is still stronger than supply heading into the second half of 2018,” said Riaan Koppeschaar, Exxaro’s finance director.
The miner said on Thursday it expects domestic thermal coal sales in the first half to end-June to have risen 11%, excluding sales to Eskom. Export sales have decreased 6%, but strong domestic demand is expected to continue to underpin growth.
The firm expects coal production to rise 1.7% during the period, to 23.5-million tonnes, even as capital expenditure falls One reason for this was the delayed development of its Thabametsi mine. Capital expenditure in its second half is expected to be 31% lower, largely due to timing of sustaining capital, and due to Thabametsi.
Barring any market shocks, further marginal increases were anticipated in global industrial production, trade and fixed investment during 2018, to support global GDP growth of about 3.4%, compared with 3.3% in 2017, the miner said.
The domestic market remained strong due to supply shortages for higher quality products, while sales to Eskom during the second half of 2018 were expected to rise 2%.
Arbitration to resolve contractual arrangements with the power utility at the Arnot mine continues.
Chinese coal demand has been surprisingly strong in the first half of 2018, including a 12% rise in demand year on year in the four months to April, which had surprised analysts.
“This follows news of a strong 14% increase in seaborne coal imports into China to 127million tonnes for the first half, with 22-million tonnes unloaded into China so far in June, indicating that coal consumption continues to rise,” according to SP Angel analysts.
However, the US-China conflict over trade was still first and foremost on investors’ minds, said Ian Cruickshanks, chief economist at the South African Institute of Race Relations.
South African miners faced local policy uncertainty that was holding back greenfields development and fixed investment, and there was also little prospect of a commodities super-cycle on the horizon, Cruickshanks said.
OVERALL, WE EXPECT THE MARKET TO REMAIN BULLISH AND DEMAND IS STRONGER GOING INTO THE SECOND HALF