SA’s coal mining houses, already battling dwindling export volumes due to the country’s inefficient rail and port system, are in for a torrid 2024, with the World Bank expecting the price of the commodity to fall more than a quarter as demand wanes in favour of renewable energy.
The Washington-based lender said in its commodity markets outlook coal is increasingly being squeezed out of the power sector, partly due to the rapid growth of renewable energy generation and natural gas.
“Assuming the conflict in the Middle East does not escalate, coal prices are forecast to fall ... 26% in 2024, and 15% in 2025, but remain well above the 2015-19 average,” the report reads.
“The forecast assumes that recent consumption growth will moderate in 2024 and 2025, with smaller increases in China and India and larger declines in the US and the EU.
“Recent estimates point to a slowdown in coal consumption in 2023 with smaller increases in China and India and larger falls in the US and EU. Decelerating demand for electricity and increased hydropower output reduced demand growth in India and China, respectively. Consumption in the US shrank 24% in the first half of 2023 due to mild weather and strong growth in renewable output.”
Coal miners had a bumper 2022 as the price of the fossil fuel surged — averaging $358 a tonne — as punitive Western sanctions on Russia pushed European buyers to pay top dollar for fuel to fire power plants.
Russia was Europe’s biggest supplier of coal and natural gas before the war.
Acquire assets
Coal prices have since fallen more than 60% — a reality that is reflected in the recent reporting cycle of listed coal miners. Exxaro Resources in August reported a 32% drop in profit on lower thermal coal prices and SA’s logistics challenges.
The company has over the past two years been looking to acquire critical mineral assets to diversify its business and reduce its reliance on coal as the world shifts towards cleaner sources of energy.
Thungela reported a R3bn profit for the six months to end-June, down more than two-thirds from the R9.6bn recorded for the same period last year.
The downbeat thermal coal price outlook by the World Bank, coupled with SA’s ongoing logistics crisis will heighten fears of job losses in the sector.
Coal mining company Seriti Resources last month told Business Day it had started a section 189 process at the Klipspruit Colliery that is expected to affect as many as 605 jobs.
The World Bank expects the price of platinum to rebound slightly to $1,050/oz in 2024. The plunge in platinum prices this year has led to job losses in SA, which has some the world’s deepest and costliest such mines.
The World Bank predicts that the price of gold, a safe haven in time of geopolitical turmoil, to average $1,900/oz in 2024 — 6% higher than so far this year.
The conflict in the Middle East is set to lead to heightened global uncertainty, with substantial implications to gold prices if the conflict escalates, it noted.
Price spike
“Though the initial impact has so far been moderate, its escalation [of the war between Israel and Hamas] would worsen such uncertainty, which would lead to reduced risk appetite as well as lower consumer and investor confidence. These developments could lead to sharply higher gold prices,” the bank said.
“Indeed, gold prices have spiked during previous episodes of geopolitical uncertainty such as conflicts. In the event of a more widespread conflict in the Middle East, gold prices are likely to increase from already high levels as investors shift to safe-haven assets.”
SA gold mining companies have fared better than their coal and platinum group metals (PGMs) counterparts this year as the price for the commodity has held steady. Harmony Gold’s share price is up 48% year to date, while Gold Fields is up 39.7% and DRDGold 30%.
Kieran Tompkins, commodities economist at Capital Economics, said the firm has raised its gold price forecast to reflect the current heightened geopolitical risk.
“There have been breaks in the inverse relationship between the gold price, real [US] treasury yields and the dollar at points in the past two years, partly due to the sharp increase in the price level. But even so, the real gold price has also decoupled from real yields,” Tompkins said.
“Nonetheless, we think that inverse relationship will strengthen again in 2024 and for the gold price to rise as monetary policy is loosened in the US next year. However, the increase could be modest, as gold prices that high will weigh on physical demand. We forecast the price to rise to $2,100/oz by end-2024.”
The World Bank says the slowdown in the Chinese property and construction sectors will cause iron ore prices to weaken 11% this year and fall further in 2024 and 2025.
“Over the longer term, the outlook is for steady supply growth from new mines in Africa, Australia and Brazil but more sluggish demand growth as China transitions to less steel-intensive activities.”
The bank expects the price of Brent crude oil to decrease slightly next year, though it warned the possibility of the Middle East conflict spreading in the region is the main upside risk to oil prices.
“Price forecasts could also be affected by changes in economic activity influencing oil demand, especially demand for transport, where most of the oil is used.”
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