Exxaro, South Africa’s major coal miner and a key thermal coal supplier to state utility Eskom, has shared its half-yearly production and sales assumptions for H1 CY20 (Jan-Jun’20) in a pre-close trading update today. The main highlights of the same are as below:
Production:
- The company’s total coal production is expected to decrease by 1% than the outlook provided in Mar’20mainly due to the ongoing pandemic’s impact on market demand and the lockdown measures that have affected its Mpumalanga mine operations.
- Thermal coal production from Waterberg mine is expected to increase by 4% against H2 CY19 (Jul-Dec’19) in line with improved production and offtake by Eskom. Production at the Mpumalanga commercial mines meant for export is expected to be 11% lower against H2 CY19.
Export & Domestic sales:
- The company expects overall sales to fall by 2% in H1 CY20 against the outlook provided in Mar’20.
- Sales to state utility, Eskom is expected to drop 8% in the first six months of 2020 against H2 CY19 as supply agreements at the ECC and Leeupan collieries were still being negotiated.
- An increase of 16% in export sales is expected, driven by the availability of the export product from company’s operations, as markets return to normality, as well as good demand in alternative markets.
- Although weaker U.S. dollar sales price per tonne is anticipated to be realised, in line with the weaker API4 coal export price index, a weaker rand/dollar exchange rate is expected to provide cushion to the export sales.
Capital expenditure:
The company expects the capital expenditure for H1 20 in coal business to decrease by 61% compared to H2 CY19 and 15% lower than the outlook provided in Mar’20, mainly due to project delays linked to the pandemic and timing in equipment replacements.
Other key highlights in H1 CY20:
- Due to COVID-19 many industrial buyers in South Africa’s domestic market either reduced demand or stopped coal offtake during April and May.
- The company estimates seaborne market to be oversupplied by 40 mn t.
- With API index prices reaching historically low at $40/t, markets like Vietnam and Pakistan took advantage and booked higher quantity coal whereas demand from India fell below the normal offtake.
- Transnet Freight Rail (TFR) railed 29 mn t fromJan’20 to May’20 which equates to a66 mn t on an annualised basis. This compares to30.5 mn t for the same period during 2019 thus reflecting the impact of lockdowns on production in the coal export industry.
Outlook for H2 CY20
- Fluctuations in The rand/dollar exchange rate is expected to continue during H2 CY20.
- The API4 index price is expected to be supported as activity in the key seaborne market resumes and a greater supply/demand balance is achieved.
- However, weak demand and flat pricing are anticipated in the early part of H2 CY20, as the speed at which coal demand reduced as a result of the lockdown measures far outpaced any supply response.
- Global seaborne thermal coal trade levels for 2020 are also expected to decline as compared to 2019.
- Domestic coal demand expected to show a gradual recovery amid the slow return of industrial customers to full operations. But this pickup in demand will not compensate for the lost sales in H1 CY20.
- Regarding the Moranbah South coking coal project, Exxaro and Anglo American continue their endeavors to agree on a mutually beneficial development plan and timeline.
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