Transnet discerns green shoots in SA coal market

Transnet CEO, Siyabonga Gama

TRANSNET would rail just over one million tonnes (mt) more export coal in its 2017 financial year compared to its 2016 when it railed 72.1mt, and said the prospects for further improvements in the coal market in 2018 were high.

Commenting in its interim results announcement today, in which it recorded a marginal increase in pretax profit to R13.9bn, Transnet said total export tonnes for its full financial year which ends March 31 would be 73.2mt.

It railed 45.2mt in the first half of the year compared to 44.4mt in the corresponding period of the previous financial year.

However, the improvement in thermal coal prices this year may put a different complexion on the outlook for the remainder of Transnet’s year, and possibly 2018.

The spot price for thermal coal was $109/t, a 31% improvement over the last month, and some 108% better year-on-year. Metallurgical coal prices at a spot of $271/t is a 254% improvement year-on-year.

Goldman Sachs said in a report that thermal coal prices would continue to improve even though they had reached their highest level since June 2012. “As we have been saying, unless the supply increases rapidly, the thermal coal prices could continue their run up.”

Mlamuli Buthelezi, chief operating officer of Transnet, said the company was railing more coal to the Richards Bay Coal Terminal (RBCT) and Navitrade, also in Richards Bay, as well as to Maputo in Mozambique.

“It is absolutely significant,” said Buthelezi of the improvement in thermal coal prices. “What we have seen in the past two months is that we are beginning to run trains to Maputo – about 20 trains a week from about five previously.

“Demand at RBCT looks much healthier which is coupled with improvements in our on-time departures and arrivals,” he said. “Equally, coal to Navitrade is getting to 19 to 20 trains a week. We are seeing good demand coming through on all channels,” he said.

Transnet said of its first half export coal volumes (April to September) that the performance was still lower than expected mainly due to locomotive and tippler failures, security challenges, unfavourable weather conditions, and adverse market conditions affecting customer demand.

It forecast though that the second half of the year would be much better than the first. “The positive trend in efficiency improvements on the Richards Bay corridor will support maximum volume performance on available product,” it said.


There would be a 3% decline in export iron ore railed in the full financial year. Transnet forecast railing 56.1mt compared to 58.1mt in the previous financial year.

“The current period’s volume performance is 4% below the prior period due to lower iron ore commodity prices which resulted in mines slowing down production,” said Transnet.

However, manganese export volumes increased 7.5% to 5.7mt from 5.3mt previously as commodity prices in that sector began to recover, said Transnet.

Siyabonga Gama, CEO of Transnet, commented that there were some “green shoots” of recovery in evidence, but that the strain on the company in the first half had been significant.

For instance, Transnet had provided R628m in price reprieves to clients which had hurt the company’s profit-making, but had saved 3,000 jobs and was worth R2bn to South Africa’s gross domestic product. If global conditions started to improve, Transnet would set about recovering revenue from these clients, said Gama.

Transnet had also moved to limit its downside risk in the event of a sovereign credit rating downgrade to junk status – which it doubted would happen – by negotiating covenants on most of some R30bn in debt. “We were able to do this because of the strength of our own balance sheet,” said Gama.

Transnet’s gearing was at 43.8% (2015: 43.1%). It repaid R17.2bn in debt during the period and had some R9.6bn in cash and cash equivalents (2015: R5.5bn) and R16.85bn in committed facilities with banks on 24 hour call.

“We have the headroom to go to 60% (gearing) if need be,” said Gama. “We are currently at 43.8% so Transnet is in a strong and liquid financial position,” he said.