With the rising demand for South Africa’s coal and other minerals, the country’s government has been trying to resolve the structural challenges within its logistics system to weed out operational inefficiencies.
One of the first such steps taken by the South African government is the recent announcement of Transnet National Ports Authority (TNPA) as an independent subsidiary of Transnet SOC Limited.
The functional and legal separation of the two entities, which are currently operating divisions of the same company, will mean that revenues generated can be re-invested in port infrastructure, both for the replacement of old equipment and upgrading and expansion of the ports. This will further result in increased efficiency, lower costs and new investment in port infrastructure.
TNPA is responsible for operating and controlling South Africa’s port system which consists of eight ports, including the major and well-known coal exporting harbour of Richards Bay Coal Terminal.
What’s happening in South African coal market?
Increased demand from China, coupled with supply concerns there, have lifted prices of the South African 6,000 NAR by 53% from $87.67/tonne (t) in Jan’21 to $113.9/t as on 30 Jun’21.
South Africa’s customs data reveals, the country’s coal exports to China, which were nil till last year, stood at 3.33 million tonnes (mn t) in first five months of CY’21, as the country faced coal supply shortage post the unofficial ban on Australian coal imports late last year.
A sharp rise in domestic coal prices in China curtailed supplies due to safety inspections at mines and their reluctance to bring coal from Australia had forced Chinese traders to look for cheaper options abroad, thereby supporting South African coal prices.
On the supply side, issues related to disruptions in coal transportation, maintenance work and mishaps at rail lines, continued to hinder coal export volumes from South Africa and pushed up its thermal coal prices.
The disruption at Transnet’s rail tracks during Jan’21 and the derailment in April had impacted thermal coal supplies from mines and availability of coal stocks at RBCT Port
Power issues for miners
Eskom, which generates around 95% of the country’s power, continues to implement staged power cuts across the country in response to unplanned maintenance and breakdowns at its power stations.
Industry experts feel the consistent blackouts would negatively impact mining operations in South Africa as the intensity of the load shedding would force miners to halt or reduce operations.
In addition to this, many small and mid-sized South African coal miners are struggling with financial constraints post-pandemic, resulting in their subsequent closure or suspension of activities. In in such a scenario, only coal giants like Anglo American, Glencore and South32 can survive and govern market dynamics.
Short-term outlook
Though South African coal prices have witnessed marginal fluctuations since the past two weeks, Indian and Pakistani buyers (major South African coal consumers) kept to the sidelines in expectation of price corrections.
There is strong anticipation that Chinese demand for imported coal will reduce after 10 July, when mines inspections ease (after the 100th year celebration of the Chinese Communist Party is over), resulting in correction of imported coal prices.
However, RBCT is set to go for maintenance post 10 Jul’21 which means that supply issues will prevail supporting prices further. Any respite from elevated South African thermal coal prices seems unlikely.
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