TRANSNET loomed large for Exxaro Resources, the South African thermal coal producer which said today in an operational update that its production targets for 2021 were at risk owing to lower locomotive availability, vandalism, and cable theft.
Coal production in the first six months of 2021 would be 11% lower than in the second half of 2020. Sales would be 9% lower. One positive from the transport problems, however, was an increase in the coal export price.
The benchmark API4, an export price “… will continue to gain momentum as supply wanes”, assisted by the recovery in the global economy which, at 6% real gross domestic product growth this year would be the best performance since 1972. Export prices were expected to cool by the year-end as supply recovered.
The API4 price was forecast to average $95 per ton (FOB), a 48% period-on-period improvement. Exxaro shareholders are also expected to benefit significantly from dividend flow via the company’s 20% stake in Sishen Iron Ore Company, a subsidiary of Kumba Iron Ore. The iron ore price has averaged $183/t (2020:$122/t) so far this year.
Sales to Eskom were flat as the power utility had sufficient stock, while the domestic market for coal was “subdued”. But the focus of Exxaro’s update fell squarely on the Transnet division, Transnet Freight Rail (TFR), which was name-checked repeatedly by Exxaro for its “poor performance” in the six month period.
TFR railed 24.3 million tons (Mt) to Richard Bay Coal Terminal (RBCT), the privately-owned export handling facility, from January to the end of May representing an annualised ‘tempo’ of 58Mt, well below the average of about 62Mt – 64Mt in the previous years.
That five month performance was equivalent to an average of 5.1 trains per week and compares to 6.9 trains per week in 2020. The average trains on the Mpumalanga export rail route were even more dramatic dropping to 14.9 for the five months compared to 25.3 trains in 2020.
“The alarmingly low TFR performance is due to poor locomotive availability, increased incidences of cable theft as well as increased vandalism of rail infrastructure,” said Exxaro. The company said it and the Coal Industry Forum, a platform established by the Minerals Council SA, had discussed the underperformance with TFR.
“TFR’s poor performance on domestic and export flows is most concerning and we expect this situation to continue to impact very negatively on our ability to move coal to customers and ports,” said Exxaro.
This would result in lower than previously guided sales volumes, it added. Exxaro would detail further effects of coal volumes at its next market guidance event in August. The domestic market for certain products would be under “tremendous pressure” as producers sought to clear stock for export through Transnet’s routes.
The lower volumes, as well as changes in product demand, would also have a unit cost impact on Exxaro’s Mpumalanga province mines as it “put a strain” on its ability to produce coal at optimal levels, the company said. Stock levels and production costs would be “managed”, the company said.
