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SA to lose $4.5bn in thermal coal revenue as Transnet railing problems persist

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SOUTH Africa could lose out on export revenue totalling $4.5bn this year as a result of a decline in coal deliveries, said auditor PwC.

Asked for the opportunity cost of failing to match previous years’ coal exports, Andries Rossouw, energy utilities and resources leader for PwC said it was “a massive number”.

Annualising the 55 milion tons (Mt) delivered to South Africa’s ports during the first six months of the year, South Africa was set to export 15Mt less than in 2020 – the year Rossouw said signalled a major decline in the delivery performance of the state-owned logistics and freight company, Transnet Freight Rail (TFR).

Assuming an average coal reference price of $300/t for 2022, the cost of failing to match  2020 exports was $4.5bn in revenue. Rossouw said it was “a real shame”.

He was speaking following presentation of the firm’s ‘Mine 2022’ report which aggregates the performance of Johannesburg-listed companies with a market capitalisation of not less than R200m and excluding their international operations.

The report highlighted the prominent role played by South African coal companies in the report’s coverage, for the year ended June. Thermal coal was the largest contributor to a 10% increase in revenue, equal to “a staggering” 59% of total growth, said PwC.

This was despite a 10% decline in South African production which was mainly related to coal companies having to ratchet down in line with TFR capacity constraints.

TFR has been troubled by copper cable theft and sabotage which have hamstrung its ability to export coal. As a result, coal companies were seeking alternative routes to port, said Rossouw. “One compensating factor is that we can truck our coal out,” he said.

“That can make up some of the tons that TFR can’t deliver, but you know the impact that has on road infrastructure. Rail is so much more efficient,” said Rossouw. Port constraints in South Africa have seen the more distant Maputo in Mozambique and Walvis Bay in Namibia benefit, especially as the improvement in the coal price – up about 403% over two years – is incentivising the production.

PGMs facing recession?

Rand weakness was also assisting coal export prices as well as in other sectors such as platinum group metals (PGMs). The rand basket price for PGMs increased 43% over the period of PwC’s survey with the rhodium price in particular benefiting: up 65%.

However valuations on the JSE for PGM companies have been under pressure. Shares in Anglo American Platinum and Impala Platinum are down 20% and 17% year-to-date respectively (although up impressively today). Analysts fear that although margins are still good for PGM producers, despite a cooling in the dollar prices, global recession presents a major economic headwind in the next 12 months.

“It seems the heydays seen in recent years could be drawing to a close,” said Nedbank Securities analyst, Arnold van Graan of PGM valuations in a recent report.

“There are various views out there that we are facing a recessionary environment,” said Rossouw. “In South Africa we are hedged with a weak rand which helps us survive, but the link between recession and the decrease in demand for commodities is a real one. Therefore we are likely to see some pressure on demand going forward if we do end up with a real recession,” he said.

Other factors that might mitigate price pressure on PGMs was an easing in the supply of semi-conductors which would possibly stimulate automotive production. This might take a year to show up however, said Rossouw.

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