South Africa is the world’s seventh-largest coal producer and a net exporter – accounting for close to 9% of total world steam coal exports in 2015. Along with Indonesia and Australia, South Africa is shifting directions from Europe toward Asia, with India accounting for 70% of its exports to Asia in 2015. IHS Markit expects South Africa to play a key role providing for Asia’s key demand centers, predicting 56MMT in steam coal exports to Asia by 2020, steadily increasing through 2040.
South Africa is well poised to meet Asia’s future coal demand. The country’s proven reserves sit at an estimated 30 BMT, and an estimated 30 billion MT more in reserves could be extracted from neighboring countries Botswana, Namibia, Zambia, Zimbabwe and Mozambique. In addition, in 2014, South African suppliers negotiated take-or-pay agreements with the rail operator Transnet, effectively locking in rail rates that will increase only with inflation generally.
South Africa’s export competitiveness, however, faces limitations from the quality of its coal, which tends to have high ash content and low calorific value. In addition, Eskom, the domestic utility, eats up close to 125MMT of domestic coal production annually – a figure expected to rise to 160MMT by 2020 due to the government’s continued supply security concerns. Suppliers also face mining and labor cost inflation, which has been offset by the rand’s depreciation relative to the US dollar. Finally, existing low power prices need to rise to justify greater commitment by the state to coal development; the absence of this commitment already serves as a major disincentive to mining investments.
Despite these obstacles, IHS Markit predicts South African exporters will provide formidable competition for Indonesian suppliers in the southern Asian markets, particularly in India, where Richards Bay material is currently winning at the expense of Indonesian coals.
You can find the latest South African coal market data, news and insight through our South African Coal Report. Available through our APAC and African Coal Market News & Analysis service, this report provides: