In a pre-close update provided on December 3, JSE-listed diversified miner Exxaro Resources said the easing of Covid-19 lockdowns around the world in the latter part of the year had helped to increase coal offtake volumes in both the domestic and international markets.
FD Riaan Koppeschaar explained that, although there was still a good demand for sized products, the domestic market was still destocking excess product that accumulated over the last six months owing to lower demand during higher levels of lockdown.
“We saw a good recovery in demand for coal from India and the rest of the world as lockdown restrictions were eased and industries resumed production. The API4 index returned to some stability before gaining momentum in November with highs of $70/t.
“Internationally, there remains a risk of the potential effect of second-round Covid-19 lockdowns and uncertainty around the stand-off between China and Australia,” he said.
Exxaro is one of the largest South Africa-based diversified resources companies, with interests in coal, titanium dioxide, iron-ore and energy commodities.
The company forecasts that it would have produced, including buy-ins, 47.6-million tonnes of coal by the end of the year, compared with 45.5-million tonnes produced in the year ended December 31, 2019.
Exxaro forecasts that it would have sold, including buy-ins, 46.6-million tonnes of coal by year-end, compared with 44.5-million tonnes sold last year.
Specifically, metallurgical coal production is anticipated to be 4% higher this year compared with last year, while coal buy-ins are expected to be 42% higher than last year, mainly to fulfil supply commitments made in the first quarter.
Thermal coal production is expected to be in line with that of 2019.
Further, Koppeschaar pointed out that commodity markets recorded mixed results over the year to date. In respect of Exxaro’s key commodities for 2020, the API4 coal export price index is expected to average $61/t free on board, compared with $71/t reported last year, while the iron-ore fines price is expected to average $100/t, compared with $94/t last year.
Total coal production, excluding buy-ins, and sales volumes were both expected to increase by 5% year-on-year, mainly owing to the increased demand by Eskom for the Medupi power station and the ramping up of production at Belfast.
“While we expect an increase of 27% in export volumes, we expect a weaker dollar sales price per tonne to be realised, in line with the weaker API4 coal export price index, cushioned somewhat by a weaker rand/dollar exchange rate.
“In terms of our capital allocation programme, we expect the capital expenditure for 2020 in our coal business to be about 47% lower compared with 2019, mainly owing to project delays linked to the pandemic, as well as key projects reaching completion,” Koppeschaar notes.
As at October 31, Exxaro’s net debt – excluding Cennergi’s net debt of R4.6-billion – was at R5.9-billion, compared with net debt of R5.8-billion at the end of last year.
In addition to operational measures implemented to combat the spread of Covid-19, the company says it has sufficient liquidity to withstand an interruption to its operations and will remain a going concern for the foreseeable future.
Meanwhile, Koppeshcaar says current Chinese economic data remains highly supportive of strong steel demand, accelerating credit growth and ongoing improvements in fixed investment and the purchasing managers’ index, along with strength in the property sector.
As a result, Chinese steel production remained elevated throughout the period under review and, despite improved global iron-ore supply, the market balance was tight with strong iron-ore prices.
The titanium dioxide pigment market fundamentals softened with high supply, most notably from China, and weakened global demand.
Exxaro reports that the willingness to spend, by a weakened consumer base and behavioural changes to end markets, which titanium dioxide is most exposed to, have negatively influenced overall demand levels this year.
The Brent crude oil market was characterised by the significant impact of Covid-19 measures, collapsing demand and the Saudi Arabian and Russian price war. During 2020, for the first time ever, the US, Russia and Saudi Arabia, the world’s three largest oil producers, cooperated to boost oil prices from historically low levels.
However, a resurgence in Covid-19 cases, towards the end of the year, has deterred the recovery in demand.
In the Atlantic thermal coal market supplier cutbacks, as a result of persistent low prices, have the potential to swing the market into balance. In Asia, thermal coal prices are supportive as the Indian market recovers, coupled with Indonesian supply cutbacks.
China’s strong demand for iron-ore together with a seasonal drop in global supply (Brazil, Australia and China) should support the iron-ore markets into 2021.
However, as the year progresses, a softening in the iron-ore market is anticipated as global seaborne supply recovers, with Chinese steel production stabilising at lower levels compared with this year.
Exxaro anticipates the demand and pricing for coal domestically to remain relatively stable, as customers return to normal operations.
“On the international front, we expect that the related impacts of the pandemic on coal markets will continue into the first quarter of next year as the second wave grips parts of the world.
“We will continue the rollout of the integrated operations centres across our operations, thereby enabling operational insights and in-time decision making which will assist us in our journey to improve our safety, productivity as well as cost performance,” said Koppeschaar.
The company’s financial results for the year ended December 31 will be announced on or about March 18.