World cannot afford to lose SA coal supply, analysts say
A huge decrease in the price of export coal and persistent rail constraints are placing pressure on the amount of coal that can be shipped from SA to global markets such as Europe.
The benchmark coal price averaged $270 a tonne in 2022, but this year it has come down to about $130 to $140 a tonne. At these prices the cost of transporting coal by road instead of rail becomes difficult to justify.
Though coal prices remain above their five-year average, prices are coming down from record highs as fears of a serious gas shortage in Europe start to subside.
According to James Stevenson, executive director and research lead at coal and metals research company McCloskey by OPIS, last year SA miners trucked about 15-million tonnes of coal to ports for export and “the global market can’t really afford to lose those tonnes”.
During a webinar hosted by McCloskey on Tuesday, the company’s Southern Africa editor, Randy Fabi, said that last year, because of the high prices, a rare opportunity presented itself. Miners were able to truck their coal to ports other than the Richards Bay Coal Terminal (RBCT) to get around the limited capacity offered by the stateowned freight and logistics group Transnet.
There was an increase in shipments from places such as Maputo in Mozambique, Durban and even Walvis Bay in Namibia.
This year, with prices hovering around $140 a tonne, it is not economically viable any longer to send coal via road to other harbours because of the high cost of trucking.
As a result, a lot of junior miners are returning to the industrials market in SA, supplying local cement manufacturers, for example, Fabi said.
“Last year, Transnet was only able to rail about 50-million tonnes of coal to RBCT, which was a 30-year low and so far this year the situation is getting even worse,” Fabi said.
At its annual results presentation in March, SA’s largest coal miner, Exxaro, said its export tonnages fell by close to a third last year, hindered by problems at Transnet.
According to industry sources, said Fabi, in the first quarter of 2023 railing services were down about 20% compared to the same period last year — if it continues at this rate for the rest of the year, exports through RBCT could drop as low as 45-million tonnes.
The situation is sure to frustrate coal miners given that demand from Europe for SA coal will remain high. The European energy crisis is not over, evidenced by the EU announcement in March that it was looking at restricting gas consumption, Stevenson said.
Towards the end of the year there is still likely to be a big risk of northern winter gas shortages, and energy shortages in general across Europe.
As a result, the global seaborne market for coal is still growing and it will be another year or two before this market goes into a structural decline as large amounts of renewable energy start coming online.
PRICE DIPS
But, said Stevenson, if coal prices dipped below $130 a tonne the global market would face supply losses from exporters such as SA and Russia, which, though facing sanction in some jurisdictions, has been able to “provide some balance” on the supply side by exporting to the likes of India.
“We really need price levels that support both Russian supply, which is at around $125 [per tonne], and trucked SA coal for which the required price level is at about the $130 to $140 per tonne range. If the market prices dip for more than a month or two below these levels, you start losing supply we have already seen a supply loss out of SA.”
Stevenson said McCloskey saw two potential outcomes for coal prices this year: if Europe has a normal summer and winter, with adequate fuel supply, prices will continue to hover where they are now, but if supply gets tight towards the end of the year, this would cause a 30%-35% spike in prices.
There is some hope, said Fabi, that the recent interventions made by President Cyril Ramaphosa to try to solve the problems at Transnet will help to turn the situation around.
Ramaphosa announced that public enterprises minister Pravin Gordhan will lead a delegation to China later this month in a bid to break an impasse over the delivery of locomotives and spare parts by Chinese rail equipment maker CRRC E-Loco. Transnet and the supplier have been fighting a legal battle over what Transnet believes to have been an unlawfully awarded R54bn contract in 2014 for the supply of 1,064 locomotives.
Transnet accuses the Chinese firm of withholding spares and maintenance for 161 locomotives it has already supplied.
According to Fabi, if Gordhan can reach an agreement with the Chinese company, it could get 1,000 locomotives into service, which could ramp up railings to RBCT to as much as 75-million tonnes a year — a near 70% improvement on the expected volumes of 45-million tonnes.