Exxaro flags continued rail dysfunction even as it eyes uptick in coal demand
30 June 2022 - 08:22
UPDATED 30 June 2022 - 13:59
byKarl Gernetzky
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Exxaro, one of Eskom’s largest coal sources, says it continues to feel the pinch of dysfunction of Transnet’s rail network, but is optimistic about an improvement in coming months, as it also eyes an uptick in demand from Europe as Russian sanctions kick in.
Co-operation between the mining industry and Transnet on issues of security and maintenance were showing results, Exxaro MD for minerals Kgabi Masia said on Thursday, but the miner was also shunting some of its exports to a domestic market that has also shown improvement.
Total coal sales volumes are expected to decrease by 3% and exports more than a quarter in the six months to end-June, the miner said in a pre-close update, due to logistical constraints as well as the sale of three noncore coal mines to a BEE junior miner in September.
Exports are expected to fall 27% to 2.59-million tonnes in the first half relative to the prior six months, with Exxaro saying its export guidance now includes 1.4-million tonnes at risk, reducing the original 7.6-million-tonne export guidance for the full year to 6.2-million tonnes.
Total first-half coal sales are expected to dip to 21.15-million tonnes, while domestic thermal sales are expected to have picked up 8% to end-June.
The Mpumalanga export rail performance has declined from 15 trains a week in 2021 to eight trains a week so far in 2022, amid continued poor locomotive availability, derailments and instances of cable theft and vandalism, the group said.
Coal is one of SA’s largest foreign-exchange earners, and R63.7bn in exports in 2021 accounted for almost a tenth of SA's total mineral exports.
Rail dysfunction has hit other exports as well, such as chrome, iron ore and manganese, and the Minerals Council SA said earlier in June that the industry suffered an opportunity cost of R50bn in 2021. Deliveries are measured against the capacity of the rail and port infrastructure and rolling stock.
Mining contributed R481bn to GDP in 2021, up from R353bn the year before, and the inflow of dollars from exports has helped support the rand, providing cushioning against inflation.
Exxaro, however, has been benefiting from record prices for coal in 2022, stemming from Russia’s invasion of Ukraine, and European demand for SA’s high calorific value coal is expected to increase in the second half, mainly attributed to the ban of Russian coal coming into effect in August. First-half benchmark API4 coal is expected to average $270 per tonne in the group's half, up 78.8% from the preceding six months.
The power crisis in India is also expected to contribute to higher demand as the government has now mandated all importing coal-based plants to resume full-scale operations, the miner said on Thursday.
Market volatility is expected as Russian suppliers seek alternative markets to place product, but Exxaro still expects pricing to remain strong, given the overall higher pricing of the energy complex.
In afternoon trade, Exxaro’s shares were down 2.97% to R202.03, but have still risen by almost a third so far in 2022, and by 53% over the past two years.
Update:June 30 2022 This article has been updated with additional information.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Exxaro flags continued rail dysfunction even as it eyes uptick in coal demand
Exxaro, one of Eskom’s largest coal sources, says it continues to feel the pinch of dysfunction of Transnet’s rail network, but is optimistic about an improvement in coming months, as it also eyes an uptick in demand from Europe as Russian sanctions kick in.
Co-operation between the mining industry and Transnet on issues of security and maintenance were showing results, Exxaro MD for minerals Kgabi Masia said on Thursday, but the miner was also shunting some of its exports to a domestic market that has also shown improvement.
Total coal sales volumes are expected to decrease by 3% and exports more than a quarter in the six months to end-June, the miner said in a pre-close update, due to logistical constraints as well as the sale of three noncore coal mines to a BEE junior miner in September.
Exports are expected to fall 27% to 2.59-million tonnes in the first half relative to the prior six months, with Exxaro saying its export guidance now includes 1.4-million tonnes at risk, reducing the original 7.6-million-tonne export guidance for the full year to 6.2-million tonnes.
Total first-half coal sales are expected to dip to 21.15-million tonnes, while domestic thermal sales are expected to have picked up 8% to end-June.
The Mpumalanga export rail performance has declined from 15 trains a week in 2021 to eight trains a week so far in 2022, amid continued poor locomotive availability, derailments and instances of cable theft and vandalism, the group said.
Coal is one of SA’s largest foreign-exchange earners, and R63.7bn in exports in 2021 accounted for almost a tenth of SA's total mineral exports.
Rail dysfunction has hit other exports as well, such as chrome, iron ore and manganese, and the Minerals Council SA said earlier in June that the industry suffered an opportunity cost of R50bn in 2021. Deliveries are measured against the capacity of the rail and port infrastructure and rolling stock.
Mining contributed R481bn to GDP in 2021, up from R353bn the year before, and the inflow of dollars from exports has helped support the rand, providing cushioning against inflation.
Exxaro, however, has been benefiting from record prices for coal in 2022, stemming from Russia’s invasion of Ukraine, and European demand for SA’s high calorific value coal is expected to increase in the second half, mainly attributed to the ban of Russian coal coming into effect in August. First-half benchmark API4 coal is expected to average $270 per tonne in the group's half, up 78.8% from the preceding six months.
The power crisis in India is also expected to contribute to higher demand as the government has now mandated all importing coal-based plants to resume full-scale operations, the miner said on Thursday.
Market volatility is expected as Russian suppliers seek alternative markets to place product, but Exxaro still expects pricing to remain strong, given the overall higher pricing of the energy complex.
In afternoon trade, Exxaro’s shares were down 2.97% to R202.03, but have still risen by almost a third so far in 2022, and by 53% over the past two years.
Update: June 30 2022
This article has been updated with additional information.
gernetzkyk@businesslive.co.za
Exxaro gets solar power project go-ahead in record time
Coal miners come under fire from shareholders over pollution
Train wreck: how Transnet derailed SA business
Companies in this Story
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Most Read
Related Articles
Coal miners come under fire from shareholders over pollution
Thungela disputes Transnet force majeure call
Exxaro unimpressed with Transnet’s rationale
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.