Exxaro suffers R11bn opportunity cost as year-on-year coal exports decline 32%

TRANSNET Freight Rail (TFR) was on course for export deliveries to Richards Bay Coal Terminal (RBCT) of just over 54 million tons (Mt), said Exxaro Resources.

The government-owned rail and ports utility has been beset with multiple problems this year including a two week strike and a coal derailment which halted deliveries this month. TFR railed 52.67Mt in coal from January to end-October, said Exxaro.

Exxaro said coal exports at some 5.26Mt for this year would be 6% lower than the previously guided 5.59Mt. On a year-on-year basis that represents 2.37Mt or 32% decline in exports (2021: 7.63Mt) equal to an opportunity cost of $642m or R11bn assuming this year’s average coal price.

TFR, a business unit of Transnet, has a stated capacity of about 60Mt on the Mpumalanga to Richards Bay line, therefore the interruptions are a major frustration to coal exporters as they come amid strong prices for the fuel.

In an operational update prior to the close of its 2022 financial year, Exxaro financial director Riaan Koppeschaar said today the average export coal price from South Africa (API4) was expected to be $271/t this year compared to last year’s $124/t average.

The coal market had been supported by sanctions on Russian exports to Europe following its invasion of Ukraine in February, he said. A temporary ban on exports from Indonesia, poor weather conditions and labour shortages in Australia contributed to coal price strength, Koppeschaar added.

Commenting on prospects for the coal price, Exxaro said that despite some price weakness in the fourth quarter the coal price would be “supportive of seaborne thermal coal demand and prices”.

“The heightened European interest in South African thermal coal is expected to remain well into 2023 as Europe continues to find solutions to be independent from Russian-energy sources,” said Koppeschaar. “South African thermal coal exports into high CV (calorific value) markets, such as South Korea and Japan, present further opportunities.”

Exxaro also has exposure to the iron ore market through its passive 20% stake in Sishen Iron Ore Company, a joint venture it holds with Anglo American-controlled Kumba Iron Ore.   Iron ore prices were expected to average $116/t this year compared to $160/t in 2021.

For 2023, global steel production – which drives iron ore demand – would be flat. Supply of the mineral would also be higher year-on-year although there was a risk of it “falling short of expectations” depending on steel production in China, said Koppeschaar.