South African coal miner, Exxaro Resources, has anticipated that a reduced demand from struggling state-owned power utility Eskom, would lead to a decline in coal production.
In its Pre-Close financial statement made for the six months period ending on 30 Jun’19 (H1 CY19), the company has estimated coal production of 22.2 MnT in H1 CY19, down 5% from 23.3 MnT noted in the previous half year period (H2 CY18).
Company’s thermal coal production from Waterberg was expected to decrease by 6% to 21 MnT in H1 CY19, in line with reduced Eskom demand at Medupi plant. While production at Mpumalanga mines was expected to be in line with H2 CY18.
The company said lower production, due to the sale of the North Block Complex (NBC) operation, was offset by the ramping up of production at both the Mafube and Belfast mines.
On the other hand, Exxaro’s metallurgical coal production seems to be benefited from the ongoing woes at the power stations. The company had highlighted that a higher coal stock at power plants coupled with lower off-take from Medupi had enabled them to produce more metallurgical coal.
Metallurgical coal production was anticipated to increase by 4% to 1.19 MnT in H1 CY19 against 1.14 MnT in H2 CY18.
Exxaro’s Coal Sales:
Exxaro’s coal sales was expected to decrease by 4% to 20.95 MnT in H1 CY19 as against 21.84 MnT in H2 CY18, mainly driven by reduced demand from Eskom.
Total sales to Eskom was expected to fall by 3% as a result of lower off-take by Medupi plant from Grootegeluk mines and the NBC divestment, but was partially offset by higher sales from Leeuwpan and ECC.
Exxaro has mentioned that export sales prices have came under severe pressure, which were currently trading at levels last seen in CY16. Besides, lack of import demand from China coupled with high coal stock level in Europe and low gas prices leading to coal-to-gas switching, has weakened coal demand, the company added.
However, the company was positive of posting a 10% increase in export volumes, cushioned somewhat by a weaker rand/dollar exchange rate. Exports figures were predicted to reach 4.44 MnT in H1 CY19.
Short-term Outlook:
Exxaro expects a stable domestic coal demand and pricing for the remainder of the year, but does not see a recovery in global pricing and demand balance.
Citing Chinese influence on supply/demand balance coupled with huge oversupply of coal in the Atlantic Basin and predictably lower gas prices, Exxaro’s market forecast for the remainder of the year remained bearish.
Leave a Reply