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Record Richards Bay exports at others’ expense

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Exports of South African thermal coal through the Richards Bay Coal Terminal (RBCT) hit a record 75,4-million tonnes (mt) in 2015, an increase of approximately 4 mt above 2014 levels.  However, this will not translate into an equivalent rise in the country’s total exports, says information and insight company IHS.
“Despite this record growth in export tonnage of thermal coal through the RBCT, it is not a sign that South Africa is likely to see significant growth of coal exports in 2016,” says Andrew Wells, managing editor at IHS Energy. “With South African coal prices languishing near seven-year lows, competitor export terminals who hope to expand capacity and attract more customers will struggle to regain market share in 2016. The market is weak and oversupplied.”
The dominance of RBCT is supported by the IHS Global Steam Coal Service (GSC), which estimated total South African exports of 77 mt of thermal coal in 2015.  This suggests that non-RBCT shipments, through other export channels – including the nearby Richards Bay Dry Bulk Terminal (DBT) – have dropped by at least half since 2014.
The difficult economic climate for coal exports means that, despite efforts to make the market more attractive for shippers who are not shareholders of the RBCT – predominantly the ‘junior’ or Black Economic Empowerment (BEE) miners – to export coal independently out of alternative ports, is a challenge, IHS says. RBCT remains the cheapest and therefore, most popular, route to export in this low price environment.
However, the preference for this cheaper route has meant that the junior miners have to sell to RBCT shareholders to gain access to RBCT, giving up their independence and shelving their plans to develop strategies to sell directly to customers.
“Even though more competitive transport and handling charges have been introduced by other port operators as reported by the IHS McCloskey Coal Report in November last year, the reduction in mining margins, due to the 27% decline in coal prices in the past 12 months, means that the exporters want to shave every cent they can from transport and logistic costs and reduce risk to a minimum,” Wells says.
That is likely to mean that even the under-utilised DBT, which is offering single-cost rates covering all transportation, handling and storage costs, has not achieved significant inroads in terms of expanded export volumes.
While this has brought down the cost of shipping coal out of the DBT for many smaller users to almost parity with what it costs to rail and ship from the RBCT, the additional costs, and other terms, including attempts by operators to include take-or-pay clauses means everyone is boxing shy of this option, Wells says.
DBT can handle about 3 mt per year of coal, but shipments are understood to currently be about half that level. However, there are plans to expand to 4 mt per year by the end of 2016. The increase in export tonnage at RBCT is in part due to an improved rail performance by Transnet Freight Rail, but also strong demand from India has bolstered the terminal’s performance. Last year, approximately 36 mt of South African coal was shipped through RBCT to India, which is about half the total coal export volumes, up from 30 mt in 2014.
In 2015, Indian imports fell by an estimated 4 mt to 172 mt, and the success of South African coal in India has been at the expense of Indonesian producers, which had to cut their coal exports by 50 mt, last year due to the global oversupply, according to IHS Energy.
With the Indian government predicting coal import demand to decline by approximately 10% in the 2016 to 2017 financial year, the performance of RBCT in 2016 will hinge on whether South African coal exports can continue to outperform Indonesian coal exports.