Thermal coal exports from South Africa’s Richards Bay Coal Terminal (RBCT) are expected to fall to 52-53 mnt in 2022, down by 10% y-o-y amid a series of operational disruptions dodging state-owned logistics firm Transnet.
This is despite strong European coal demand during 2022, and amid global supply constraints.
“Exports from the non-RBCT ports such as MPT/DBT ports are seen at 8 mnt for 2022, sharply up by 4.3 mnt in 2021, and Maputo Port at 6.3 mnt in 2022, up from 2 mnt last year, while shipments from Durban and Walvis ports will be around 1-1.5 mnt,” said Zaheer Surka, Executive Director at Oza Holdings, which also includes Ikwezi Mining, at SteelMint’s Engage 3.0 webinar session.
Ongoing Transnet issues and the constrained supply chain situation, together with high prices, are likely to limit exports from the country this year, wherein miners are seen focussing on supplying higher grades coal of 6000 NAR-5500 NAR.
“Higher coal prices have already supported a sharp increase in export volumes through these ports (non-RBCT) over the last few months. However, any further increase in volume may be capped as the existing infrastructure is already being fully utilised and there are limitations in terms of handling trucks,” he added.
The declining trajectory of coal prices in the country in recent weeks may also result in a drop in export volumes from these ports, as coal deliveries from non-RBCT Ports are offered at a discount to RBCT ports.
Current challenges
Apart from frequent cable theft, and vandalism, coal transportation to RBCT and alternate ports forms a major issue.
Coal deliveries to RBCT Port are predominantly done via railway, while the alternative ports use road transportation.
There has been a major shift in coal export volumes to alternate ports this year, as RBCT Port operated under force majeure for several months.
However, the extent of export capacity rising from non-RBCT Ports also remains limited as these ports have almost reached their peak capacities and no major expansion plans are scheduled in the short-term.
Export demand may remain weak till Dec’22
South African coal exports to Europe are likely to remain weak for the rest of 2022 as uncertainty over Russian supplies have compelled power utilities to frontload their bookings, with over-than-expected inventory built up for the winter for both coal and gas.
Shipments to Asia are also seen within a tight range with the emergence of Russian coal at key markets and as South African coal prices continue to remain elevated.
High-CV RB1 grade prices that rose to a whopping $442/t in March, have eased to $227/t till 2 Nov’22. However, prices remain higher by 9% on a y-o-y basis.
Indian sponge iron producers happen to be booking low-CV 4800 NAR due to pricing viability and the ability to blend with alternate-origin coals.
However, miners also do not rule out the possibility of a spurt in South African coal demand after a cold winter early next year.
“We do believe, coal prices may remain higher in 2023 and 2024 with the Russian embargo, and the tight gas market. Even if the war stops, the dependency on coal in Europe is likely to sustain as a lot of gas infrastructure has been damaged,” he added.
Eskom power crunch
South Africa has faced a major power crisis this year, leading to long hours of blackout as Eskom, which generates more than 90% of the country’s power, struggled to meet rising electricity demand.
The decline in power generation was not because of coal supply constraints but mostly due to issues related to state capture, corruption, and poor maintenance of coal-fired power plants.
Owing to these operational issues, new coal mining projects have failed to grow in South Africa.
“Historically, the South African mining industry has been supported by investments from Eskom, as part of its long-term supply agreements. Due to the lack of support coal producers are becoming smaller and scattered…” Surka said.
Policy and regulatory constraints, beside community issues, funding challenges, rising costs, and shortage in accessing rail infrastructure, have put South African coal output under pressure this year.
South African coal output has been declining from around 250 mnt in 2020, to 234 mnt in 2021.
“There is no major investment in coal mining in the country. The industry is scattered and there are pressure on right reserves,” Surka added.
Short-term outlook
The ongoing locomotive issue around Transnet Freight Rail Services may lift coal prices to some extent in the near term.
More than 200 locomotives have been blocked across the main line to RBCT Port since mid-October.
Transnet SOC Ltd has launched an application in the High Court to compel China Railway Rolling Stock Corporation (CRRC) E-Loco Supply (Pty) Ltd to make available to Transnet the spare parts and components that were acquired in 2012 and 2014.
Earlier this year, Transnet planned to issue a tender for new locomotives, in an effort to resolve its chronic locomotive shortage.
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