The domestic coal market was in “chaos”, commentators said this week, as strong demand from Eskom and industrial customers competed with unexpected global demand.
For several years, analysts have warned the price of coal used in power stations is declining since environmental pressures are choking off demand. But there is little sign of that yet.
Short-term factors supporting coal demand include India’s increased imports since falling output from hydro, wind and nuclear power have coincided with a seasonal decline in
India is also considering a nationwide ban on burning petcoke, a highly polluting fuel, which would have to be replaced by imported coal.
Analysts said this was likely to benefit South African coal exporters, for whom India is a well-established market.
China was also expected to increase thermal coal imports throughout its 2017-18 winter since its plan to replace coal with gas for household heating had encountered gas shortages.
Xavier Prevost of XMP Consulting said pricing in the local market was “chaotic” at present because many mines were hoping to sell at good prices to Eskom or to export to Asia.
Local industrial customers were battling to find the specific products they needed. The situation was driving up prices to unprecedented levels. Peas, a good-quality coal used in boilers, was selling for R1,200 a tonne or more.
By December, the index of export coal prices through Richards Bay Coal Terminal was at $95.80 a tonne, a third above its dip to $72 a tonne in May.
Prevost said that South African exports to several Asian countries, not only India but also Pakistan, South Korea and Taiwan, had increased in the past three months.
It was difficult to forecast whether Indian demand would continue to be strong, he said. The Indian government wanted to develop its domestic coal resources, which are plentiful, rather than rely on imports, but it was not as successful as the Chinese government in enforcing its decrees.
Prevost said the current strength in export coal prices was likely to continue for at least the next couple of months. However, it was unsustainable in the longer term.
Forward prices to the fourth quarter of 2018 were on a downward trend.
For their own survival, local miners should be looking longer term and managing the needs of their domestic customers for different coal qualities and sizes, including Eskom and independent power producers.
Glencore CEO Ivan Glasenberg said this week that Glencore would spend the necessary capex to maintain its production at about 142-million tonnes a year but it would not invest in expanding production in SA or anywhere else.
“The world does not need more coal,” he said.