The mining major, South 32 has announced production cut at its Wolvekrans collieries in South Africa for three months starting 1 Sep’20.
The company has cited mounting operating losses and negative cash flows triggered by COVID-induced sluggish seaborne demand as the key reasons for the production cut.
The Wolvekrans is one of the largest open-cast coal mine having marketable reserves of 315 mn t of thermal coal. The mine supplies coal to power utility Eskom which would continue however, the production cut is meant only for export market.
The mine processes 6280 kcal/kg NAR thermal coal with VM and ash content of 25% and sulphur content of 0.48% for export market.
In recently released half-yearly company results, South 32’s average realised price from thermal coal exports in CY20 stood at $55/t against $69/t in H1 CY19 whereas in case of domestic prices the realised price stood at $23/t against $24/t last year.
The company highlighted that its thermal coal export sales declined by 30% y-o-y at 2.18 mnt during Apr-Jun’20 quarter as a result of lower production volumes and the diversion of coal to domestic customers, as export shipments were affected by COVID-19 lockdown, impact to the logistics chain and, end-user demand.
How will this impact Indian market?
South 32 has an average export sale of 2.5 mn t in each quarter over last two years and the supply curb is likely to make the South African API coal index go up in the upcoming months.
India is one of the key markets for South African thermal coal attributing to around 50% of its total yearly exports. During Jan-Jul’20, the country exported a total of 41.6 mn t of thermal coal and exports to India stood at 19.4 mn t.
As per the industry participants, in case of India, the South African coal is majorly used by sponge iron sector and as sponge iron prices in domestic market is going up due to rising iron ore and pellet prices, the increased imported coal offers would further push the end-product prices despite overall tepid demand.
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