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Pressure mounts on Eskom coal demands
Xavier Prevost
Posted: Tue, 19 Feb 2008
[miningmx.com] -- THE new Eskom CEO of Energy Generation mentioned last Thursday that an extra 45 million tonnes (Mt) of coal would be needed for stockpiles for the following two years.
During 2007 Eskom bought about 110 Mt of coal. With the gradual increment that the generation industry is experiencing at the moment, the figure for 2008 will be almost certainly 120 Mt. An increment of that magnitude in its procurement would most likely use almost all non-Eskom coal available for the local industry (about 50 to 60 Mtpa).
As part of the same Eskom announcement, mention is made of a price of R150 to R250/t. Although this price does not compare with the present unit price for coal exported ($120/t or R919/t), taking into account the costs of converting run-of-mine high-ash coals to exportable products, plus the many other costs incurred by exporters to get their product to coal
terminals and the terminals’ costs, it makes the price offered quite attractive.
The questions therefore become: Could the industry produce such a tonnage for Eskom? and Will this not cause the rest of the local industry’s sales to collapse?
Looking at the 2008 coal industry, i.e. existing coal mines plus new projects about to be implemented, it is possible that diverting some of the coal about to be processed to feed exports, plus some “middlings” produced by processing plants, could result in the extra Eskom’s tonnage being obtained.
At what cost? Sold at about R150 to R250, it would take the R11bn that Eskom is willing to spend. What about the electricity price? Is the market prepared for a 50% to 150% increase in prices? I think that the present “dash for coal”, although very good for the industry, will only make the commodity’s prices abnormally high and affect the whole of the local sales’ prices.
Eskom needs more coal in the future and surely, as new power plants are built, the mines that will serve them will come into stream and produce enough for Eskom’s future needs. An attempt to create stockpiles now at such prices will only take coal from other users, such as the cement, chemicals and small industry’s users and create a demand not yet experienced in the local market place.
Other options include importing steam coal. At
current prices it would be total madness as steam coal would no longer be the cheapest energy source and gas would therefore become a cheaper alternative.
The other possibility is to import from a nearby producing country, such as Botswana or Mozambique. Again, all depends on prices. If Eskom can cover all of the producers' costs, plus a profit, it can be done, but the costs will be equivalent to the R150/t to R250/t mentioned before.
If large Eskom coal suppliers, such as Exxaro, Anglo and BHPB Energy increase their deliveries, as promised by the Committee dealing with the present crisis, this will suffice for the moment.
Mines about to be open, as part of the ramp-up for the RBCT Phase V export expansion from 72 Mtpa to 91 Mtpa and beyond, will also produce middlings suitable for Eskom’s needs. These new mines should ensure that future needs will be addressed.
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