SA misses coal boom

Fri, Dec9, 2011

London - South Africa's coal exports are surging into 2012 just when top spot buyers China and India are out of the market and supply bottlenecks elsewhere have eased, so it will have to fight for market share, eroding prices in a fundamentally weak landscape.

South Africa has the port capacity to export 81 million tonnes a year of coal from Richards Bay Coal Terminal, but in recent years the tonnage shipped has been far lower at about 64 million tonnes due to rail bottlenecks.

Exports in 2012 are forecast at around 70 million tonnes due to operator Transnet Freight Rail's (TFR's) improved railing rate, exporters and analysts said.

Even if TFR cannot sustain its target 1.6 million tonnes of coal a week moved to Richards Bay, after years of doubt and stinging criticism exporters expect rail rates to rise enough for an extra 7-10 million tonnes of exports.

"I think there's a lot of room for prices to come down - I wouldn't be surprised to see $85.00 a tonne FOB Richards Bay then rebounding back to $105 next year,” said Jaime Correal, analyst at Wood Mackenzie in Annapolis.

Exporters who have enjoyed fat margins on sales at over $100 against cash costs of about $60 are weighing up their likely profits on a higher volume sales at lower prices.

South Africa will export 21 million tonnes of coal in Q4, only slightly less than the 27 million shipped in the first half of the year, following a dramatic performance improvement by rail operator TFR.

Benchmark South African prices FOB Richards Bay have fallen from January’s highs of over $130.00 a tonne to about $100.00, on weakening fundamentals which will bite harder and push prices down in the coming year.

"Isn't it ironic that South Africa gets its act together on railings just as China withdraws from the market?," one major European trader said.

"It's the coal without any visible means of support because it isn't yet pricing in to any market in the world," he said.

This year began with a price spike and supply disruption due to floods in Australia's Queensland state and the Japanese tsunami. Indonesia and Colombia's output was hampered by severe rains and South Africa's exports seemed set for a shockingly low total of under 57 million tonnes.

"Last year almost every exporter had problems - but this year it's the reverse, nobody has a major problem exporting and South Africa is shipping at a totally unexpected rate," one major South African exporter said.

"It's bearish next year and the South African exporters are not in the best position to be trying to increase sales now," said Emmanuel Fages, an analyst with Societe Generale.

But some are unconvinced that TFR can keep up the pace.

"The performance of TFR has really improved lately but it's not clear if it will be sustainable or whether they'll start to have problems again," said Jaime Correal, coal analyst with Wood Mackenzie.

"For this reason and because of strong domestic demand, we expect a slow growth in South African exports to 68 million tonnes maximum next year and slowly beyond that."

Retired drivers save the day

Among numerous TFR initiatives this year, the re-hiring of locomotive drivers had a dramatic impact on productivity, exporter, rail and transport sources said.

"TFR re-employed 26 retired or semi-retired train drivers; their knowledge is very important, they know how to handle a train and can do their own minor repairs," one source said.

These experienced drivers are able to drive new longer trains with many more jumbo wagons over some challenging parts of the line prone to derailments, and can save hours by avoiding the need to send out repair teams.

The move to a scheduled rail service, infra-red inspections of rail track (two potential derailments were averted that way) and raised security to prevent cable theft all played a part.

Rising quantities of American coal bought 1-2 years ago at discount prices are being shipped to Europe, increasing the pressure on South African sellers to shift sales to Asia.

India has been the biggest single buyer of South African coal since 2007, much of it now sold under term contracts but from next year India's biggest trade importers say they will buy spot only and will seek cheaper alternatives where possible.

"There's no doubt that some of the Indian buyers with index-linked term contracts have really suffered and will be more short-term buyers," another major exporter said.

India has been out of the spot market for several months and in the meantime, China absorbed the unwanted tonnes.

China is now the second-largest buyer of South African coal and absorbed about 9.5 million tonnes in January-October, roughly a fifth of the country's exports and a huge increase.

South Korea, which has reverted to buying standard grade coal, is also expected to buy more from South Africa.

"China and India, especially China, are such a huge price influence and the Chinese buyers like South African coal so as long as freight rates remain fairly low, it will still be competitive into China," the second exporter said.

(sourced Reuters)

SAfrica's Transnet ups coal line tariffs by 26-30 pct

Thu Mar 24, 2011 8:10am GMT

JOHANNESBURG, March 24 (Reuters) - South Africa's rail and logistics group Transnet [TRAN.UL] said on Thursday it would raise tariffs on its rail line used to transport coal to the export terminal at Richards Bay by up to 30 percent.

"The export coal rail tariffs will be raised by between 26-30 percent. The tariff increases will be effective from March 26," spokesman Sandile Simelane said in an emailed response to questions. (Reporting by Agnieszka Flak, Editing by Olivia Kumwenda, Reuters)

Tags : raw material, power station coal, Asian coal market, Africa coal

Richards Bay coal derailment on Thurs minor loss

Fri Feb 25, 2011 12:11pm GM

LONDON (Reuters) - A derailment on the Richards Bay coal line near Ermelo on Thursday is unlikely to result in large tonnage lost, rail and exporter sources said.

The derailment was caused by theft of power cables, a common problem on the South African rail system, they said.

A series of derailments in December and early January plus industrial action cut at least 3 million tonnes from South Africa's exports at the tail end of 2010 and beginning of this year, industry sources said.

South Africa is unlikely to be able to export 60 million tonnes in 2011 and the final total may be even lower if transportation continues to be beset by problems, they said.

"There was a minor derailment early on Thursday but repairs are being carried out and no tonnage has been lost yet although there will be some loss as a consequence," one source said.

Transnet Freight Rail had transports 1.45 million tonnes in the week to Thursday and is expected to quickly catch up after the latest derailment.(sourced:Thomson Reuters)

Optimum Coal blames Transnet for low delivery

Five years of decling deliveries to Richards Bay Coal
Terminal but a turnaround last year

Friday, Feb 04 201107:04:48 AM
By Allan Seccombe

OPTIMUM Coal has laid the blame for undelivered export coal squarely on Transnet Freight Rail and doubted the utility’s claims it would shift 70-million tons of coal this year, urging it to appoint a CEO to give it much-needed leadership.

"History shows they’ve never done 70-million tons, but if they do, it will be of great (for) the industry," Optimum CEO Mike Teke said. He wanted Transnet to appoint a CEO as soon as possible.

"I’d like to be able to knock on someone’s door, someone who can make a difference. Transnet needs someone to make decisions," Mr Teke said.

Optimum has 318000 tons of export-grade coal stockpiled at its operations, waiting for it to be delivered by rail to Richards Bay Coal Terminal, where it has an 8,44-million-ton annual allocation.

"Transnet Freight Rail has fallen short of our expectations. If we had received all our trains we would not have these stockpiles," Mr Teke said. "They could have done better."

Transnet Freight Rail has set a target this year to deliver 70-million tons of coal to Richards Bay as it moves towards its target of 81-million tons, Divyesh Kalan, GM of Transnet, said at the McCloskey Coal Exports conference in Cape Town this week.

Last year Transnet Freight Rail missed its 65-million-ton commitment because of a strike that knocked 2-million tons off that target and a derailment that cost it 1-million tons. "We’ve had five years of consistent decline in deliveries to Richards Bay Coal Terminal, but we had our first year of turnaround last year," Mr Kalan said.

Transnet Freight Rail is working closely with its coal customers to match coal production to rail capacity. It has installed about 40% of the jumbo wagons it wants running on the coal line and has taken delivery of 40 of the 110 new locomotives it is dedicating to the coal haul line.

Meanwhile, Optimum yesterday reported a profit in the six months to end-December increasing to R275m from R16m a year earlier. It may have to raise debt in the financial year ending June to complete a R700m capital expansion programme to develop new mines.(sourced:Businessday)

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