Diversified miner Exxaro Resources expects demand for export coal to remain strong amid constrained global supply.

FD Riaan Koppeschaar said in a pre-close message to shareholders on December 2 that high gas prices and expected cold weather in the northern hemisphere would continue to drive stable demand for coal.

South African coal miners, including Exxaro, would, however, continue to struggle with the evacuation of coal destined for the export market, as a result of challenges with railing coal to ports.

The lower rail performance would also continue to put pressure on the domestic coal market, as a result of the availability of increased volumes.

“As previously communicated, rail performance has put strain on the mining value chain and impacted our ability to produce coal at desired levels,” he noted.

He lamented that the poor rail performance continued to impact on domestic coal markets, exacerbating high stock levels at the mines.

In the year-to-date, the miner’s coal operations were influenced by international coal prices having reached an all-time high amid constrained supply, as gas prices saw a substantial increase that supported the switch to coal, further driving the increase in demand for coal.

The ongoing political tension between China and Australia has resulted in China exploring different supply options, including South Africa. While China has reacted negatively to the current high pricing, it does appear that prices will remain strong as the northern hemisphere braces itself for a cold winter.

In contrast, Exxaro experienced poor demand from India as affordability has become a crucial factor.

Domestic market demand for power station coal also remains depressed as Eskom remains well supplied with average stock of about 48 days, which is significantly higher than its minimum requirement of 20 days, Koppeschaar said.

Production at the Mpumalanga commercial mines is expected to be 18% lower than previous guidance, mainly owing to Mafube and Leeuwpan being impacted by lower rail performance, with Leeuwpan further impacted by market constraints and the Exxaro Coal Central disposal in September, offset by higher production at Belfast where export sales product was diverted to the local market.

Exxaro expects its export sales volumes for the year to end December 31 to be 13% lower than previous guidance, mainly as a result of the rail constraints.

Metallurgical coal production is anticipated to decrease by 16% owing to poor rail performance, and coal buy-ins are expected to be in line with previous guidance.

Metallurgical coal sales are expected to decrease by 12% from previous guidance, owing to lower rail performance negatively impacting the offtake from ArcelorMittal South Africa.

“The poor rail performance's effect on domestic and export flows is most alarming and it is continuing to negatively impact on our ability to move coal to customers and ports, resulting in lower than previously guided sales volumes in the export and domestic markets,” Koppeschaar stressed.

As a result, the guidance now includes four-million tonnes being at risk, compared with the three-million tonnes reported in August, bringing the original 11.6-million tonnes export guidance for the full year down to 7.5-million tonnes.

Transnet Freight Rail has railed 48.4-million tonnes of coal to the Richards Bay Coal Terminal from January to the end of October, which Koppeschaar said was equivalent to an annualised tempo of 58.8-million tonnes a year.

As a result, the performance from Grootegeluk has dropped from seven trains a week in 2020 to four trains a week in the year-to-date.

The Mpumalanga export rail performance dropped from 25 trains a week in 2020 to 15 trains a week for the period from January to October.