As demand for South African exports increases, mining houses can expect profits, but the consumer will be hard hit, writes Bronwen Jones
COAL will be in short supply this winter as overseas demand soars and the rand makes foreign sales more attractive. Add to this the lulls in production enforced by heavy rains earlier this year and sharp price rises look inevitable.
While mining houses can expect sturdy profits, the South African consumer will be hard hit.
This may be the nest egg that coal marketer and distributor MacPhail so sorely needs to turn around its R2,9-million loss for the six months to end-December, but the true price rises cannot be easily passed on.
Indeed, MacPhail itself intends to diminish its exposure to the local market. Says chief executive Paul McNaughton: “It is one of our strategic objectives to increase our offshore presence and expand exports.”
Speaking from Zimbabwe, McNaughton said: “With South Africa joining the rest of the world post-sanctions, demand for our coal has increased tremendously. Not surprisingly, local suppliers have tended to favour exports over the home market, but to date no one has run out of coal in South Africa.”
McNaughton said the company had made contingency plans for the winter. MacPhail has purchased 30 000 tons of bituminous coal up front, which will be prepacked and distributed by Spoornet in high-sided wagons. These will be stored in sidings and released to strategic outlets as winter progresses.
McNaughton said: “We’ve also put in stocks at our depots because we want to prevent shortages. But it is going to be a close-run thing.”
On his second trip to Zimbabwe within a week, McNaughton was in the process of negotiating a supply contract “but I can’t give you details yet”.
He added that another project on the books will be decided by end-June. “We’re in the middle of a feasibility study for a R100- million sized coal terminal at Richards Bay. Aiming to serve a niche market, the terminal would handle between two and four million tons a year.” This does not alter the overall capacity at Richards Bay Coal Terminal (RBCT), however, as it is designed for bulk coal, not sized coal.
The problem for the South African consumer remains price and availability. Pithead (at the mine) prices have risen by between 17% and 20%; transport costs are up 10 to 12% and then there’s the labour component of packing and redistribution. McNaughton said: “Coal has virtually achieved the same universal status as gold. Prices are international now and they’ll be at least 15 to 20% up on last year.”
Eskom has seen a 4,7% increase in use, while Sasol’s usage is up by 10%. Sasol has its own mines and Eskom has tied collieries that meet its needs. But even so, the pressure is on.
South African coal exports surged to a record 59,9-million tons in 1995, worth R6,5-billion. While this is a 9,5% increase on 1994’s exports, Chamber of Mines’ senior economist Roger Baxter said it had not kept pace with the 15% growth in seaborne coal trade across the globe.
About 90% of South Africa’s coal exports are steamcoal and again, while this sector grew by 7%, it lagged far behind the overall international growth in seaborne steamcoal, up by 22% in 1995.
In all, South Africa exports coal to 36 countries, with almost 54% of its trade going to Europe and a further 35% sold to the Far East.
The demand in Europe was subdued, because of economic slowdown and cheaper coal sources in North America. The US has been a significant swing supplier and while it has the disadvantage of higher sulphur content coals, most European countries have the technology to deal with them.
Another problem looming for South Africa is the lack of capacity at RBCT. On current exports, it has
1 396-million tons of “excess” capacity a year left. While work is under way to boost capacity to 63-million tons, another year of the same growth in trade would push the requirement to 64 171-million tons – capacity the port clearly does not have.
Work at RBCT may cost about R10-million, averaging out at R3 per ton of annual export. It is possible to extend the stockpile and to build another ship loader, but the bigger plans for capacity of 69-million tons could cost R150-million to construct.
Even that would not be sufficient capacity if there was a further year’s growth in trade of 9,5%.
Exporting through Maputo is not necessarily the answer. While this would open up the coalfields of the Waterberg region in the Northern Province, the Maputo port will need a thorough – and costly – dredging and unlike RBCT, it is not owned by the coal suppliers.
The extra railage costs mean Durban is also not a viable option for bulk coals, though it can handle about one million tons of sized coal a year. The answer has to lie in urgent construction of a new terminal at Richards Bay.
In addition to steam coal, South Africa exports low ash bituminous coal, which is used for certain metallurgical processes, chemicals and also for iron and steel production
Meeting the demands of those coal-hungry markets, while keeping the home fires burning, is a problem seeking a solution before winter sets in.