SA achieved disappointing coal export volumes during the first four months of 2022 even as a global energy crunch and a lack of new coal volumes supported high international coal prices.
From January to April, SA exported 20.6-million tonnes of coal, down 1.9% compared with the same period in 2021, according to African mining sector research specialists Afriforesight.
Over a five-year period, coal exports declined 20% from about 80-million tonnes in 2017 to about 64-million tonnes in 2021.
Thermal coal prices were at a multiyear high, having more than tripled over the past year. The Richards Bay thermal coal price for high-grade coal, which is a benchmark price for export coal, was trading at about $300 per tonne in April, after dropping from a high of about $450 per tonne in March, but still significantly above the prices from one year ago when coal traded at $100 per tonne.
The price was expected to decline over the next 18 months, but would remain well above the $100 per tonne mark, where it traded at between 2014 and the start of 2021, Afriforesight said.
One of the major factors driving high coal prices was the supply uncertainty and disruption caused by Russia’s invasion of Ukraine. Meanwhile, demand was rising as many countries come out of their Covid-19 pandemics using a lot more energy than before.
It seemed unlikely that the situation “will resolve quickly” and it was therefore fair to expect “a prolonged impact [from the war] on the global economy”, said Afriforesight chief economist Nathan Musson in a presentation.
Russia is a major supplier of gas, oil and coal, particularly to Europe and the sanctions as well as other moves by European countries to move away from Russian supply would continue to disrupt and cause inefficiencies in global energy markets throughout 2022 and in 2023, Musson said.
“It is likely that we will see another large spike in energy prices later this year during the northern hemisphere winter as demand increases in Europe,” he said.
SA, which has the advantage of lower shipping costs to export coal to Europe compared with exporters such as Australia and Indonesia, has been “a big winner in the scenario”, but poor performance by the Transnet rail network and at the Richards Bay Coal Terminal meant that coal miners have not been able to make use of high coal prices as much as they would have wanted to, said Vinesh Chetty, head of energy commodity analysis at Afriforesight.
The decline in rail availability has seen coal exports decline since 2017, he said. SA now exports about 20% of its coal. Last year only 4% of exports went to Europe, while 40% to 50% is generally exported to India.
Given that India is the largest export market for SA coal, supply shortages at Indian coal-fired power stations was currently driving coal prices higher in SA.
For the rest of this year and in 2023 Afriforesight’s industry profitability measure showed a 50% operating margin for export coal, which was well above levels seen during the past five to six years.
“In 2020 profit margins were negative and there was a lot of concern that coal miners would exit the market, but at current levels we can expect miners to stay in coal,” said Chetty.
Afriforesight outlook for local coal prices is mixed. On the one hand, Eskom, which is the single largest buyer of thermal coal (the utility accounts for about 45% of local demand), is hoping to renegotiate supply contracts at lower prices. Poor performance of the Eskom coal-fired fleet has also resulted in local demand weakening. But for other users of industrial coal the trend would most likely mimic export prices.
The industrial coal price in SA is about R1,000 per tonne, significantly lower than the export price (about R4,600 per tonne), but it is affected by export prices.
Over the longer term, the availability of coal globally will become more constrained. It is “incredibly difficult” to fund new coal mines and even Asian governments are not willing to fund new coal mines outside their own countries even though they are still building new coal-fired power stations, Chetty said.
“This makes it very difficult to build new coal mines, but those companies that are already in coal mining will be able to charge higher price for their coal because there isn’t enough supply coming onto the market.”
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