Coal export prices slide

2nd July 1999 By: System Author

Coal export prices have been declining steadily for the past 24 months, and hopes are high that they will reach a plateau at around US$24/t, Minerals Bureau chief mineral economist: coal and hydrocarbons Xavier Prevost tells Mining Weekly.

“South Africa has lost export tonnages to most importing countries recently, especially with regard to the European and Asian markets,” he continues.

Competition between leading coal-exporting countries is even tougher at the moment, as is to be expected in times when coal prices are very depressed.

“Australia has an advantage over South Africa in that it dedicates most of its production to exports, consuming only a small percentage internally; it is also positioned favourably geographically in relation to the main Asiatic coal market, and its coal-mines are generally closer to ports, eliminating a large percentage of the transport costs,” explains Prevost.

“The larger South African producers are still making a profit, although they have put off any plans for future expansion for the moment,” he cautions.

The coal industry, in general, is just keeping head above water, but is maintaining a consistent level of output.

“There are indications that there will be an increasing need for coal in Europe in the near future, due to the fact that several of its nuclear power plants are not yet year 2000 compliant,” he reveals, but at the same time cautions that it is just one of the possible factors affecting the future demand for coal.

On the other hand, says Prevost, the International Coal Report indicates that coal prices will probably only see a real increase in 2001.

“South Africa is still heavily dependent on coal as an energy source, with 56% of the saleable production being used for power generation,” notes Prevost.

Poland’s coal exporter, Weglokoks, has reportedly also taken a big chunk out of South Africa’s coal exports to Europe.

“South African producers are not willing to export their coal at low prices, even though many countries, like India, are likely to buy extra tonnages of steam coal.

“Other countries, including Australia, are willing to sell their coal at the prevailing prices just to keep their share of the market,” he points out.

The main reason for this situation, he continues, is that South Africa generates more revenue from coal exports than local coal sales.

This sector of the industry, with its attendant revenue, supports the rest of the sector.

Ironically, with regard to local sales, household or merchant-coal consumption has continued to increase steadily despite the electrification drive in previously-disadvantaged communities.

“The only problem is that coal bought for household consumption is of a low grade and, as such, has a high ash content, and its volatiles deliver unacceptable levels of pollutants to the air.

“In order to solve this problem, the Department of Minerals and Energy has a programme to introduce low-smoke fuels,” he affirms.

“At this point the local demand for coal has not decreased, with the exception of Eskom consumption, affected by the general decrease in mining activities.

“Although a 6% increase in yearly local coal consumption was predicted for 1998, only a 1% increase materialised, but at least the demand increased,” observes Prevost.

Total local coal sales for 1998 amounted to 165,8-million tons, while 67-million tons were exported.

Revenue from exports nonetheless exceeded revenue from local sales, which were R9,8-billion compared with R8,7-billion respectively.

“The reason being that it costs us more to produce export-quality coal than it does to produce coal for local consumption.

“Coal, on average, is sold for R52,4/ t locally, but is exported for R146/t,” he elaborates.

Prevost concludes that the fact that South Africa’s economically-recoverable coal reserves will only sustain it for another 40 years, together with the depressed coal market, are justifiable cause to start exploring alternative sources of energy.