State-owned logistics group Transnet reported a 6.5% fall, from 77-million tons to 72-million tons, in export coal volumes in 2018/19, but described the decline as cyclical rather than structural.

The group attributed the slump to “operational challenges, derailments, community unrest, train cancellations as well as general low demand in the first quarter”.

On December 20, a 200-wagon coal train derailed at Elubana, near Richards Bay, after saboteurs cut a portion of the line using a blowtorch. No injuries were reported, but 51 wagons derailed and Transnet Freight Rail issued a force majeure notice.

Acting CEO Mohammed Mahomedy said the performance of the coal line was sensitive to changes in commodity prices, which had been volatile during the 2018/19 financial year. He did not see the decline as structural in nature, however, reporting that Transnet was continuing to conclude take-or-pay contracts with coal exporters.

Mahomedy said that any new investments in the coal line or the associated Swazi Link, which would divert general cargo from the coal corridor, would be based on “validated demand”, including demand from other minerals such as chrome and magnetite. Between 15- and 20-million tons of general freight is currently moved on the coal corridor yearly.

“A large bulk of our coal goes to India and I don’t know if that economy is ready to wean itself off of coal right now,” he said, adding that Transnet was in talks with several potential coal exporters in South Africa and the region.

Mahomedy’s comments follow the release of a recent report published by the Institute for Energy Economics and Financial Analysis, which warns that South Africa’s thermal coal export industry is facing a “long-term, permanent decline” as new energy technologies replace coal-fired generation at a pace faster than was previously forecast.

The report also cautions that the risk to South Africa is further amplified by the fact that its exporters are more dependent on a single import destination, India, than is the case for other major thermal coal exporting nations.

In 2018, India was the destination for 48% of all South African thermal coal exports, leaving South Africa’s export industry highly exposed to just one nation, authors Simon Nicholas and Tim Buckley stated. In the first half of 2019, the figure rose to 60%.

“The last fiscal year saw the expansion of thermal power capacity in India slow to the lowest level in a decade as a major renewable-energy expansion continued. India’s Coal Ministry is now preparing a new plan to cut coal imports by one-third, or around 85-million tonnes, by 2024.”

Titled ‘South African Coal Exports Outlook: Approaching Long-Term Decline’, the report describes the global seaborne thermal coal market as being “oversupplied” and states that the outlook is for slowing demand in the longer term and heightened competition.

“The Richards Bay Coal Terminal may have to get used to the idea that an increasing proportion of its annual capacity will become stranded. With a capacity of 91-million tons per annum, Richards Bay operated with almost 20% spare capacity in 2018.”