[miningmx.com] — EXPORT thermal coal prices are rising, which is good news for South African coal exporters as Transnet Freight Rail (TFR) finally gets its act together on railage volumes to Richards Bay.
According to RBC Capital Markets (RBC), thermal coal prices have risen sharply since mid-October, setting a series of year-to-date peaks while indications were that contracts for 2011 delivery were being settled at around $115 per tonne.
RBC cited unconfirmed reports that Tokyo Electric Power Company – the largest electric utility in Japan and the fourth-largest in the world – had settled 2011 thermal coal contracts with Xstrata at $115/t, compared with $98/t for 2010.
That’s good news for the Richards Bay Coal Terminal (RBCT), where export volumes should improved markedly during 2011 provided TFR can maintain its restored performance levels.
Exports through the RBCT plunged to 10-year lows during 2008 and 2009, when the terminal exported 61.7 million tonnes (mt) and 61.1mt respectively, despite having the installed capacity to handle up to 76mt.
The RBCT’s capacity has since been boosted to 91mt/year, with the completion of the R1.2bn Phase Five expansion which was commissioned at the beginning of May.
While some coal producers had fallen short on forecast export volumes, the bulk of the problems lay with TFR’s inability to shift the coal.
Transnet acting CEO Chris Wells told Miningmx in October that he believed TFR had finally gotten on top of the situation, and was now consistently railing at a rate of 1.4mt of coal a week.
October was an-all time record month for the RBCT, which received 5.86mt from TFR and exported 7.38mt by drawing down stockpiles.
TFR maintained railages at 5.4mt in November, when the terminal exported 5.2mt.
Annualised, that points to the RBCT exporting a total of 62.5mt for 2010. That level could rise to 67mt for 2011 if TFR maintains its performance, as Wells predicted it would.
Wells has been running Transnet in an acting capacity since March 2009 while the organisation looked for a permanent replacement for former CEO Maria Ramos.
It seems that process became extremely complicated because of political pressure and the furore that resulted over the dismissal of former TFR CEO Siyabonga Gama.
Wells has now been replaced as acting CEO by new chairperson Mafika Mkwanazi, who will run the organisation until a new permanent CEO is found.
Wells had announced his intention to resign at the end of March and will stay on until then to assist Mkwanazi “with the handover and other matters to be agreed upon’.
The coal exporters must be hoping Mkwanazi and the restructured Transnet board will continue to allocate the same level of priority to the smooth running of the Richards Bay line.
On Wells’ watch, Transnet finally committed to expand capacity on the Richards Bay line to 81mt/year by 2014 at a cost of R15.4bn. It made considerable headway in resolving the long-running issue of negotiating “take or pay’ rail tariff contracts with the coal exporters.
A major study by independent consultants Oliver Wyman looking at likely demand for coal capacity on the line above 81mt/year is due to be completed in the first quarter of 2011.
Turning to diamonds, RBC analyst Des Kilalea pointed out rough diamond prices have been strong all year and were closing 2010 at levels above those ruling before the market crisis of late 2008.
He estimated De Beers sales for 2010 would increase to about 55% above 2009 levels, reaching around $5bn.
Kilalea said: “In large part the strength in rough has been driven by restricted production and sales from De Beers and disciplined selling by Alrosa, the Russian producer.’
A key issue for the future welfare of the diamond business is that the consumer market for polished stones has not recovered anything like the rough diamond market.
Despite this, Kilalea said: “We believe the prospects for the global rough diamond sector remain good. New-mined supply is not growing and, other than a stockpile of about $1bn held by the Russian Treasury, there are no significant above-ground inventories in rough.
“The state of the polished stocks is more fluid as rough bought at high prices will swell inventories until the diamonds are sold into the retail market.
“This could inhibit sales of rough in the near term, but our view is that the medium-term outlook suggests an upward trend in rough diamond prices.’
Turning to the nickel market, RBC reckoned global nickel demand rebounded during 2010 after three straight years of decline. It forecasts continued growth into 2011 and 2012.
That’s the good news. The bad news is RBC believed the nickel market moved into surplus during the second half of 2010, and will stay that way.
As a result, the firm sees a declining price trend and expects nickel to drop from an average of $9.78/lb for 2010 to $8/lb in 2012.
