Chill Hangs Over Coal Market

AFTER a year of sliding prices, mining policy uncertainty and labour unrest, the JSE’s coal mining index has taken a severe bruising. The outlook for next year is no better, as China’s coal offtake remains weak, nations have agreed at the recent climate talks to cut carbon emissions, and SA faces increased political flux.

The latest International Energy Agency report, released in the middle of last month, suggested that by 2040, oil and coal would lose 9% of the global energy mix, offset by increased share from renewables, nuclear and gas. Renewables would overtake coal as the main source of electricity by the early 2030s. By 2040, coal would account for only 30% of electricity generation.

For coal companies operating in SA, challenges have mounted this year. Benchmark coal export prices at the Richards Bay Coal Terminal have fallen to $49/tonne from about $66/tonne in January.

The Mineral and Petroleum Resources Development Act Amendment Bill has stalled and a new minerals minister with no mining background was appointed in September.

A new CEO, Brian Molefe, was appointed at Eskom, which accounts for most of the domestic coal market. Mr Molefe is taking a hardline position on new coal contracts. For all mining companies, the costs of electricity, labour and imported materials have risen faster than inflation this year.

The biggest contributor to the JSE’s coal index is Exxaro, which is under pressure from its iron ore earnings as well as coal. The news from smaller coal miners has been mixed, with boardroom upheavals at Wescoal and Resource Generation, but progress by Coal of Africa in advancing its Makhado project and funding.

In an environment of weakening prices, all companies are trying to improve their margins. Glencore put its loss-making Optimum Coal mine into business rescue in August and Anglo American plans to sell some of its thermal coal interests in SA.

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