Exxaro, the largest supplier of coal to Eskom, suffered about R5bn in lost export sales due to bottlenecks in the country’s rail network, the latest reminder of one of the biggest constraints on the flagging economy.
Exxaro joins a host of companies in the mining industry and other sectors that have been counting the costs of inefficiencies at Transnet, whose sprawling supply chain infrastructure spanning a railway network, cargo trains and ports makes it a crucial player in the economy.
In an earnings report that showed annual profit rose by more than half, Exxaro said an additional 4-million tonnes of coal was held up at its mines because of the problems at the country’s rail network — an output that could have brought in an extra R5bn in export sales.
Exxaro’s coal production volumes fell by 10% and exports by more than a third, underscoring the effect of dysfunction at Transnet, which is grappling with a shortage of locomotives due to vandalism and cable theft, which often lead to derailments.
Sakkie Swanepoel, the group manager of marketing and logistics, told Business Day it was unlikely that there would be any meaningful improvements in the short term.
“We also hope that during the course of the year, we will see more benefit from security initiatives,” Swanepoel said. “Even though we remain hopeful, we remain only cautiously optimistic and we have to be level-headed in our outlook with the expectation being that exports for this year will be more or less at the same level as last year.”
Exxaro has been making increasing use of road transport, but Swanepoel said this does not help solve the “ultimate constraint of how much [it] can get out via the ports”.
Other companies that have cited Transnet as one of the reasons for not fully taking advantage of higher commodity prices include Sasol, Kumba Iron Ore and Thungela Resources, underscoring the urgency with which the government needs to move to revitalise the transport network.
As part of his structural reform agenda, President Cyril Ramaphosa has said private train operators should have access to the state-owned rail network within three years in a move expected to open the floodgates to investment, encourage mining companies to boost output and bring in revenue for Transnet itself.
Even with issues on the railway lines, record thermal coal prices helped lift Exxaro revenue 13% to R32.8bn in the year to the end of December, with more than a third of that flowing down to the bottom line as headline earnings came in at R11.6bn, a 56% surge on the same period a year earlier.
The performance is good news for finance minister Enoch Godongwana as the corporate tax receipts windfall has allowed him to plug holes in the budget, reduce borrowings for the first time since 2015, provide personal tax relief and extend the unemployment grant.
Exxaro made no mention of the conflict in Ukraine in its results, but during a presentation CEO Mxolisi Mgojo said Russia’s invasion of Ukraine will add more volatility to global energy markets and may provide support for coal prices in the coming months.
“We don’t yet understand what the full impact will be of Russia’s invasion of Ukraine, but we believe it will trigger a renewed energy crisis in the EU and it could see countries in the region speed up initiatives to diversify away from their reliance on Russian gas. Russia may just have activated a faster energy transition,” said Mgojo.
The situation in Ukraine recently led to a surge in energy prices, and the benchmark price for thermal coal in Asia, the largest market for the fuel, rocketed 46% on Wednesday.
On the international front, the group expects the demand for coal to remain strong as supply is constrained. The influence of high gas prices and expected cold weather in the northern hemisphere will continue to drive stable demand for coal, the group said.
But coal companies in SA will struggle to enjoy the full benefit of new opportunities that may arise for coal exports to the EU because of transport problems.
“I would like to say that we are running to supply the market, but we are tied up in existing contracts with clients and constrained by logistics to do more,” said Swanepoel.
Exxaro generally sells about 80% of its production in the domestic market.
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