Indonesian coal export ban could benefit SA producers

7th September 2011 By: Brindaveni Naidoo

JOHANNESBURG (miningweekly.com) – A ban on the export of lower-quality coal in Indonesia, the world’s top thermal coal exporter, could open a window of opportunity for South African producers.

Investment bank Dahlman, Rose & Company stated in a report that the Energy and Mineral Resources Ministry of Indonesia has drafted a decree, which would affect coal with a heating content below 5 700 kcal/kg, or roughly 10 300 Btu/lb.

Indonesia is the largest seller to both China and India, two of the world’s fastest growing economies.

Should the decree pass, Dahlman, Rose & Company said it expected South African coal to be bid away to Asia even more, which could increase the price in the Atlantic basin and benefit exporters from both the Appalachian and Illinois basin regions.

South Africa-based XMP Consulting senior coal analyst Xavier Prevost said the opportunity for South Africa would be to leverage on the gap in the market created by the possible ban.

Notwithstanding that South Africa had good export markets, he said that the country had to overcome many bottlenecks affecting its coal industry.

Prevost called for improvement in the country’s rail capacity and for investment in new coal projects.

Coal exporters have been eager to send more coal abroad to meet the rising demand from Asia, but have been hampered by infrastructure bottlenecks.

Last year, 63-million tons of coal were exported from the Richards Bay Coal Terminal (RBCT), far short of its expanded capacity of 91-million tons a year, which was attributed to limited rail capacity and productivity and service delivery failures.

Last month, the terminal exported 6.997-million tons of coal, which is a major improvement on the July shipments.

Key infrastructure developments and routes, such as the development of a 70-km rail link through Swaziland, would assist Transnet Freight Rail in relieving congestion on the line from Ermelo to the RBCT by transferring general freight through Swaziland and allocating all coal to the Ermelo–Richards Bay line.

Leveraging the gap in the export market would also create some concern for State-owned power utility Eskom, and could place strain on the relationship between the country’s coal miners and Eskom.

CEO Brian Dames said earlier this year that while it has contracted 80% of its cumulative coal supply up to 2020, rising coal prices and competing export markets were growing concerns.

While Eskom was transferring some of its short- and medium-term contracts to cost-plus contracts, Dames said that negotiations were challenging, as suppliers were keen to take advantage of the export opportunities.

But, Prevost said in such a case, the South African government would ensure that security of supply did not threaten the domestic market, as it could enforce export coal quality constraints. For example, Eskom’s quality coal cannot be exported.

“Government and Eskom need to realise that exports are the life-line of the coal industry, and do not pose a threat to Eskom. On the contrary, exports generate an extra revenue for mines, which can then produce cheaper high ash coal for Eskom,” Prevost concluded.