There is significant opportunity for South Africa’s coal industry to export to Asia-Pacific Rim countries, and especially to India, if the country is able to provide the quantities and qualities required, Wood Mackenzie consultant Xavier Prevost said at the Geological Society of South Africa’s coal exploration conference.
Prevost said that a number of large Indian companies were attempting to enter the local market, not just as buyers, but also as shareholders. “The type and quality of South African coal blend well with Indian coal, and are ideal for power generation in India.”
Prevost noted that even though the Indian markets held considerable opportunity, South Africa had a number of challenges to overcome. One of the major problems in supplying Indian markets was that two significant coal producers, Indonesia and Australia, were geographically closer to Asian countries.
South Africa was also struggling with its rail infrastructure to support coal transportation. Prevost pointed out that the Richards Bay Coal Terminal expansion project recently entered stage five of implementation, upping coal export capacity to 91-million tons.
“However, the railways are currently unable to transport even close to 91-million tons of coal. In fact, even with the Richards Bay terminal expansion, it appears that coal exports in 2009 will be even lower than in the previous year, owing to the lack of proper railway infrastructure and services. Transnet has not yet made a commitment to rectify this significant problem, and at the moment it seems as if there is little hope,” Prevost commented.
Export coal prices had also fallen signi- ficantly from their July 2008 highs, although they had recovered somewhat since the end of the year. Prevost said that factors adding strain on coal prices included increased mining costs and the cost of imported materials used for coal-mining. He noted that, at the moment, coal prices were almost marginal.
Owing to the less attractive coal prices and a lack of new mines, coal export volumes to Europe were also dropping. Prevost said that, three years ago, South Africa exported 88% of its total coal exports to Europe; that percentage had now dropped to 63%. “Hopefully, the demand from Asian markets can balance the need to sell,” he commented.
He added that companies needed to start looking for coal reserves to replace large mines expected to close down by 2020.
Also, the coal industry had experienced significant competition from other energy sources, such as gas, further straining coal prices. Xavier said that this was under- standable seeing that gas does have some advantages over coal, but added that industry should determine the extent to which gas would replace coal.
On the bright side, Xavier pointed out that domestic sales were on the increase.