Prices in the worldwide thermal coal market appear to be stabilizing. Leading to the question: is there any hope of a recovery in sight soon?
To find out, it’s critical to keep an eye on the supply dynamics unfolding globally. And one particular event may signal a big change coming, according to news emerging this week.
That comes from important global coal producer South Africa. Where Platts reports that local producers may be getting a financial incentive to halt exports.
That’s because state-owned South African electricity generator Eskom is looking for coal feed to its power plants. And may be willing to pay a premium in order to get it. Related: A “Wave of Bankruptcies” About To Hit Coal Industry
The test case here is the Optimum coal mine, in South Africa’s eastern Mpumalanga basin. A facility owned by Glencore — which was placed on care and maintenance in January due to currently-low export prices for thermal coal.
Eskom however, badly needs coal supply from mines like Optimum. Power shortages have been rife throughout South Africa of late, and electricity prices have been steadily pushing upward.
Given such, Eskom has pitched Glencore a deal: restart the Optimum mine and sell the output domestically. Related: Is China Exporting Its Pollution?
In return for the supply, Glencore would reportedly be able to save on transport costs for its coal. With Eskom instead picking up the charges for shipping coal by rail out of Optimum.
According to local experts quoted by Platts, the result would be a cost savings of about $27 per ton for Glencore. Bringing the effective price received by the company for domestic sales to as much as $36 per ton. Related: Can Utilities Survive 21st Century Energy Market?
This is significantly higher than the approximately $16 per ton that Eskom usually pays for domestic coal. Giving a producer like Glencore a significant advantage in selling locally.
If this deal becomes more-widely offered to South Africa’s coal producers, it could have a notable effect on export supply. More miners could choose to sell their product locally — meaning less coal sailing out of the country to buyers in big markets like India and eastern Asia.
Given that South Africa is one of the few swing suppliers for these markets, that would be a significant shift. Watch for export figures over the coming months from South Africa’s key Richards Bay terminal.
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Here’s to buying local,
Dave Forest
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