JSE-listed South Africa coal major Exxaro expects its production and sales volumes for the 2015 financial year to be higher than the 2014 financial year mainly due to the ramp-up of Medupi power station and inclusion of Exxaro Coal Central (ECC) – formerly Total Coal South Africa – production from 1 September 2015, partially offset by lower production at its tied operations.
The company said in a market update to its shareholders that its expects domestic sales to increase by 6% to 2.3Mt, while export sales are expected to increase by 11% to 5.5Mtpa, including ECC.
Exxaro says that given the current and expected outlook for South Africa’s electricity requirements, it believes coal remains a relevant source of affordable electricity generation for the economy and thus the company remains well positioned to supply this energy source to Eskom.
Therefore, the company says that its coal business is to a great extent hedged against falling US$ denominated coal export prices through the exchange rate as well as domestic Eskom prices remaining stable.
Commenting on the current market, Exxaro says that domestic coal demand remains “stagnant, but stable” in the power-generation and steam coal markets. As the US$ price of coal in international market continues to test new lows, domestic steam coal market has increased markedly, resulting in downward pressure on prices.
International prices have dropped below $50/t free-on-board for Richards Bay RB1 coal, with these prices expected to remain for the short to medium term.
Exxaro says that there is however still good demand for its higher-quality RB1 as well as its lower-quality coal, despite the local metals market’s struggle to compete with cheap Chinese imports, very weak demand and low international metals prices.
As a result, the company expects demand for coal from the local metals market to remain subdued in the short to medium term.
Meanwhile, in the reductants markets, various companies in the ferroalloy industry face financial difficulty as they struggle to compete globally due to low ferroalloy prices and high local electricity prices. Poor demand has affected the offtake of semi-coke from Exxaro’s reductants business unit.
Going forward, Exxaro says that its strategic priorities during the next financial year include integrating and optimising the ECC assets, developing its future black economic empowerment shareholding strategy, evaluating our current shareholding in key investments and growing investor confidence in its prospects for the coal business through increased communication of the coal strategy.