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Industry frustrations boil over at South African coal conference

5 May 2022

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UPDATE: Ali Motala, general manager for Transnet Freight Rail, has agreed to participate in a panel on South Africa's domestic markets on 6 May at the conference in Cape Town. Motala will speak about Transnet's current performance and address industry concerns over its coal line to the Richards Bay Coal Terminal.

Please note in third paragraph, the quote regarding a class action lawsuit was incorrectly ascribed to a delegate from Black Wattle Colliery. A corrected version follows.

The frustrations of South Africa’s coal industry boiled over at McCloskey’s annual industry conference with producers fed up with the systemic rail issues, rampant load shedding and policy uncertainty that are preventing them from cashing in on an unprecedented commodities boom.

Producers, particularly junior miners, expressed their anger at the Cape Town event at not being able to ship the majority of their coal supplies to domestic and foreign customers due to Transnet’s struggles with cable thefts, locomotive issues, and derailments.

One delegate called for exporters to launch a class action lawsuit against Transnet. “Why are the exporters scared to take Transnet on?” he said at the leading industry event attended by more than 300 stakeholders.

A delegate from Exxaro backed a more confrontational stance, saying that the industry was too scared to go up against Transnet. “If you fight with them, we are afraid of being doomed and they won’t move our coal. But we are avoiding the problem.”

Menar CEO Vuslat Bayoglu said he understood the industry’s growing frustration with Transnet, but legal action would not ultimately solve its operational problems.

Transnet, which declined invites to speak at the event, was not immediately available for comment.

Transnet’s railings to the Richards Bay Coal Terminal (RBCT) worsened in April, with the rail operator now on track to ship even less coal than the 25-year low of 58 mt reached last year.

This is at a time when coal prices globally are at or near record highs, with demand from Europe to find alternatives to Russian supplies pushing Richards Bay prices to record peaks.

The McCloskey Richards Bay FOB marker averaged $294.33/t FOB last month, and $334.82/t FPB in March, basis 6,000 kc NAR. In the same period last year, prices averaged below $100.00/t FOB, same basis.

If annualized to include Transnet’s annual 10-day maintenance period, the rail operator is on track to deliver around 55 mt this year. That’s a 5% drop from 2021’s 58 mt and 21% lower than 2020’s 70 mt.

RBCT’s own data further backs up what will likely be another poor year for South Africa’s main exporting terminal.

The terminal, which typically exports around the same volume of coal as it receives from Transnet, is on track to ship 56.25 mt in 2022, down 4% from the 25-year low of 58.72 mt reached in 2021.

The deteriorating situation forced Transnet last month to declare force majeure on its coal shipments to RBCT, which effectively terminated its long-term railing contracts with exporters.

Transnet is now in talks with coal exporters to thrash out new railing agreements.

“Transnet’s leaders need to be held accountable for this nightmare. Look at Europe – the world needs coal and we have it but we can’t give it to them because these guys can’t do their jobs properly,” said a senior industry executive, who didn’t want to be named due to the sensitivity of the situation.

Seriti CEO Mike Teke said Transnet must open itself to private investment to help fix its systemic problems.

“If we were to run Transnet like a private business, we would invest in new mines with confidence. The demand is there,” he said.

Teke said there was too much uncertainty keeping him from investing in new South African coal mines with confidence.

Even Eskom’s leadership expressed frustration as it struggles to get the government to provide a clear path for South Africa’s energy transition.

Eskom plans to retire 22 GW of its 37 GW coal-fired capacity by 2035, but the government has yet to say how this capacity will be replaced.

“Eskom implements policy, we don’t make policy,” said Jan Oberholzer, the state utility’s chief operating officer. “We are finding ourselves in an extremely difficult position. We do have an IRP (Integrated Resource Plan) but it isn’t adequate or efficient anymore. We need additional capacity.”

Oberholzer said for years he has asked the administration to introduce 4-6 GW of new capacity, but that hasn’t happened.

“We have to start thinking about the 60 million people in this country and stop thinking of ourselves as businesses alone. If you don’t have Eskom or Transnet in this economy – we become a failed state. We will fail, if those two collapse,” Seriti’s Teke said.

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EU steel mills concerned over PCI and anthracite supplies after Russian ban

8 April 2022

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European Union (EU) steel mills are concerned over access to PCI material and anthracite supplies after a ban on imports from Russia goes into effect from August.

The EU announced a ban on Friday on all forms of Russian coal imports starting from August, while Japan has pledged to follow suit on its own accelerated timeline, as more nations look to punish Moscow for alleged war crimes in Ukraine.

“At the moment we are only taking contracted Russian PCI material and anthracite. The spot market for PCI is extremely tight, and from August will be very tough,” a European steel mill procurement manager said.

The EU imported 5.10 mt of Russian coking coal, 5.30 mt of anthracite and 3.0-5.0 mt of PCI last year, according to GTA and McCloskey data. Total Russian PCI exports are estimated at 20.0-21.0 mt by industry sources.

The ban on Russian material is expected to lead to a redistribution of flows with China and India increasing Russian intake, while more Australian material will flow to Europe.

However, Australian supplies of PCI material are limited and prices are high. Low-vol PCI prices touched $550.00/t FOB in March, up from an average of $105.50/t FOB in March last year.

Prices have settled back since then with the weekly McCloskey low-vol PCI marker assessed at $350.00/t FOB on 8 April, down $100.00/t FOB from a week ago.

But Australian PCI prices are expected to resume their rally, with some in the market predicting fresh record highs.

“What is the upper limit in a market like this? PCI from Australia will become dearer and could be anywhere over $550/t FOB on a conservative estimate,” a Swiss trading source said.

Australia produces around 33.00 mt of PCI material each year with most of it snapped by buyers in India, Vietnam, and other Asian countries.

PCI material can be replaced by coke breeze, nut coke or met coke in blends, however availability of latter is also constrained, with prices of met coke at record levels in the EU.

McCloskey’s weekly ARA coke 65/63 assessment is at $686.67/t CIF on 8 April, up from $550.00/t CIF in early January and the weekly coke Barranquilla 65/63 is at $600.00/t FOB from $492.50/t FOB over the same period.

When it comes to anthracite, Russia is the main supplier globally as the material is all but non-existent elsewhere. There are some tonnages available in South Africa, but steel makers tend to avoid it due to its high ash content.

Russian anthracite output in 2021 totaled 25.00 mt, up nearly 20% on the year, according to local sources. More than half of Russia’s anthracite output is understood to be exported each year.

Steel impact

Western EU steel mills are forecast to produce 131 mt of crude steel this year, down from 135 mt last year, according to McCloskey forecasts.

“Even if steel output slows this year, the raw materials supply will remain tight meaning prices will remain elevated,” the European procurement manager said.

Steel production within the EU fell to 11.7 mt in February, down 2.5% on the year, according to World Steel Association data. Output fell mainly due to electric arc furnaces slowing operations amid high power costs.

“Post-August, EU mills are more busy as summer holidays are over and if Russian term and spot cargoes cannot be received, finished steel prices will rise,” a European trader said.

Finished steel prices in the EU have already seen a rise with a ban on Russian steel imports. Hot-rolled coil (HRC) prices in Europe are around $1,400-1,500/t ex works from $982/t in early January.

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EU bans all Russian coal from Aug, Japan next to follow

8 April 2022

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The European Union will ban all forms of Russian coal imports starting from August, while Japan pledged to follow suit on its own accelerated timeline, as more nations look to punish Moscow for alleged war crimes in Ukraine.

“In light of Russia’s continuing war of aggression against Ukraine, and the reported atrocities committed by Russian armed forces in Ukraine, the (European) Council decided today to impose a fifth package of economic and individual sanctions against Russia,” the European Council said in a statement.

As part of the sanctions, the EU will ban the “purchase, import or transfer of coal and other solid fossil fuels into the EU if they originate in Russia or are exported from Russia, as from August 2022.”

The value of imported Russian coal was estimated at EUR8.00bn/y ($8.70bn).

Russian thermal coal shipments to the EU amounted to 44 mt last year, or nearly 70% of the EU’s total imports of 64.5 mt, according to government data. The EU also imported 5.1 mt of Russian coking coal and 5.3 mt of anthracite last year, according to GTA.

The EU is the latest G7 member to impose a ban on Russian coal buying, with Japan indicating it was next in line.

The discovery of numerous dead civilians following the withdrawal of Russian forces in Ukraine’s city of Bucha has prompted many countries to take tougher action against Moscow.

“These latest sanctions were adopted following the atrocities committed by Russian armed forces in Bucha and other places under Russian occupation,” said EU Foreign Policy Chief Josep Borrell.

“The aim of our sanctions is to stop the reckless, inhuman and aggressive behaviour of the Russian troops and make clear to the decision makers in the Kremlin that their illegal aggression comes at a heavy cost.”

Ukraine claims that the situation in other towns and cities around Kyiv may be even worse. Ukraine’s President Volodymyr Zelensky said the situation in Borodyanka is “significantly more dreadful” than Bucha.

Russia has denied allegations of war crimes.

Japan next in line

Japan late Thursday agreed to join other G7 members in expediting plans to reduce their reliance on Russian energy, which include “phasing out and banning Russian coal imports”. However, Tokyo provided no timeline for its ban.

Japan, a major importer of Russian steam coal, is the first Asian country to announce efforts to halt Russian coal purchases since Moscow’s invasion of Ukraine in late February. Japan imported 15.09 mt of steam coal last year, or 11% of its total import needs.

“We will work further to reduce our dependency on Russia by pushing forward the diversification of energy sources, including renewables and nuclear power,” Japan’s Industry Minister Koichi Hagiuda was quoted as saying by Kyodo News on Friday.

The United States on 8 March was the first G7 member to ban Russian coal imports, while the UK earlier this week said it would stop its purchases by the end of this year.

The US imported only 0.3 mt of Russian coal last year, all of which was anthracite. The UK, on the other hand, imported 1.06 mt of Russian steam coal, representing 46% of the country’s total imports of 2.32 mt, according to government data.

While many countries are moving to free themselves of Russian coal, the two largest coal importers - China and India - remain big buyers. Both countries are working with Russia to maintain trade flows by using their own currencies to avoid Western sanctions.

German concerns

The EU ban was initially proposed to be implemented in July, but Germany sought a one-month delay to allow more time for the winding down of existing contracts, Reuters reported.

Most European utilities hold Russian supply contracts, but they are mainly short-term and are due to expire in the next few months. RWE, however, is understood to have a multi-year contract with Russian suppliers.

The German Coal Importers Association has said Russian hard coal imports could be completely replaced by other countries in a few months, particularly from South Africa, Colombia and the United States. The group said Germany imported 18 mt of Russian hard coal last year.

“(The ban) does not catch German coal importers unprepared. There have been bottlenecks for Russian coal since the autumn of last year. Since then, retailers and consumers have been looking for alternatives,” Alexander Bethe, the industry group’s chairman, told McCloskey. “There is a well-functioning world market…Russian hard coal can be replaced by coal from other countries.”

Germany’s Economy Minister Robert Habeck told public broadcaster ARD late Wednesday that the country had already cut its imports of Russian coal by at least half in the past month. He said an immediate ban was not possible because Germany did not have enough renewable generation available right now to ensure energy security.

Replacing Russian supplies

South Africa and Colombia are likely to be among the main beneficiaries from the EU ban, with exports from the two countries already soaring to Europe.

March exports from South Africa’s Richards Bay Coal Terminal (RBCT) to the EU surged fivefold on the year.

RBCT exported around 870,000 t to the 27 members of the EU in March, up from 167,000 t a year ago and 225,000 t in the previous month, shipping data showed. On a year-to-date basis, RBCT exports to the EU have surged to 1.19 mt in the January-March period, up 383% from a year ago’s 0.25 mt.

Any further increase in South African exports, however, will be limited by ongoing rail issues.

For Colombia, March coal and coke exports to the EU rose 160% on the year to 1.5 mt. On a year-to-date basis, Colombian exports totalled 3.7 mt in the first quarter, up nearly 150% from 1.5 mt a year ago.

More Colombian production could be in the pipeline with the announcement that the National Mining Agency will today begin the process to award the Calenturitas and La Jagua coal mines, which had been held by Glencore’s Prodeco. Prodeco was Colombia’s third largest coal exporter in 2019, shipping 15.6 mt before dropping off to zero.

“While coal supply will certainly grow in some locations – such as Colombia and Indonesia – we expect that European buyers will get a lot of their requirements simply by outcompeting other markets for the coal,” said Dr. James Stevenson, McCloskey’s head of global coal, metals and mining research.

“So we expect more South African and Australian to be pulled away from the Indian Ocean basin. A big question is then whether India follows through on its interest in buying more Russian coal – and is able to receive it.”

Next steps

The new package of EU sanctions also includes a ban on Russian-flagged vessels from accessing EU ports, as well as a ban on Russian and Belarusian road transport operators.

The EU is also working on additional sanctions that include restrictions on Russian oil imports. The EU’s Borrell said ministers will discuss a possible Russian oil embargo on Monday.

“Sooner or later, I hope sooner, it will happen,” Borrell said in regards to the proposed oil ban.

Russian gas flows, which account for around 40% of Europe’s needs, are not yet part of any sanctions package.

Despite the new sanctions, Ukraine said more needs to be done to punish Russia for its invasion.

“As long as the West continues buying Russian gas and oil, it is supporting Ukraine with one hand while supporting Russia’s war machine with the other hand,” said Ukrainian Foreign Minister Dmytro Kuleba. “We need steps that will stop Russia’s war machine today.”

McCloskey's Newswire, part of the Global Coal Markets News and Analysis Service, delivers real-time email alerts of market-moving news to coal industry professionals – especially of interest to traders – in a world where prices and sentiment can change in minutes. Learn more and request a trial.

© 2022 Dow Jones Energy Limited. All rights reserved.