Exxaro, SA’s largest coal miner, says the plunge in coal prices over the past 10 months made it no longer viable to transport its products by road while it continues to battle with a poorly functioning state rail system.
The drop in coal prices put a damper on the earnings bonanza coal exporters enjoyed in 2022.
To benefit from that surge in coal prices in the wake of Russia’s invasion of Ukraine and amid continuing rail capacity constraints, coal exporters such as Exxaro turned to trucking coal to ports.
Exxaro transported about 500,000 tonnes of export coal by truck in 2022. But, according to the group manager of marketing and logistics, Sakkie Swanepoel, lower coal prices have now brought this to a halt. He said Exxaro transported about 200,000 tonnes of coal to ports by road in the first half of the year, but for the time being it has stopped this entirely.
Trend
The API4, the benchmark price reference for SA coal exports, rose to a high of about $280 a tonne in August 2022, but has since dropped to $100-$120 a tonne.
In response to the lower prices, the decrease in coal being transported by road is becoming an industrywide trend, with a definite drop in coal being delivered by truck to the Richards Bay Coal Terminal (RBCT), said Swanepoel.
Last year was the port’s worst since 1993 with total exports at about 50-million tonnes. However, coal exports through RBCT for the first half were down about 10% from the matching period in 2022, to 23.6-million tonnes.
“We were transporting by truck until the economics deteriorated to the extent where it just didn’t make sense to us, specifically at prices below $100/tonne.
“It is a continuous journey [given that] we are in a period when [Transnet] is not going to be ... our solution for our export ambitions for more than a year into the future. We will need to find other routes in addition to railing coal to Richards Bay, and that includes looking at all other ports whether it is by truck or by rail. We are looking at all the options,” said Swanepoel.
The miner is already exporting coal through the Maputo port of Mozambique.
“People continuing with trucking are those that have access to the port and don’t have to lease port capacity from others, alternatively they have access to coal closer to the port. But at the [present prices] it does not make economic sense to truck coal from Mpumalanga to RBCT.”
Swanepoel said that the commodity price outlook points to coal prices remaining at prevailing levels for the next two years. “We are hopeful at Exxaro that for the current year we may see an upswing in quarter four, which will largely be driven by winter in the northern hemisphere,” he said.
Meanwhile, coal exporters continue to suffer the effects of disruptions and poor performance on Transnet Freight Rail’s coal line.
For the first six months of the year, Exxaro delivered 2.45-million tonnes of export coal to RBCT, compared with 2.54-million a year earlier. It expects to export 2.39-million tonnes during the second half of the year. This would put total exports for the year at about 4.8-million tonnes, or 8% less than in 2022.
The miner reported a 29% fall in headline earnings in the six months to the end of June, to R5.9bn.
The average benchmark API4 RBCT export price fell 53% to $130/tonne from $277 in the prior comparable period.
The domestic coal market was stable, but there was a slowing in coal sales to Eskom, the company said on Thursday.
Total coal sales to Eskom were down 11% during the first half of the year, but the group expects full-year sales to be down only slightly compared with 2022. The miner is banking on seeing some improvement in coal sales to Eskom, which were affected negatively by the poor performance of power stations in the first half of the year, said minerals MD Kgabi Masia.
The revenue contribution from its energy business was 17% higher at R610m. Generation from the Cennergi wind assets was higher, driven by an improvement in wind conditions despite energy generation loss due to an Eskom line fault.
Exxaro’s adjusted equity-accounted income from Sishen Iron Ore fell 16% to R2.6bn due to lower iron-ore prices and higher operating expenses, offset partially by a weaker rand.
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