South Africa is the world's sixth largest coal producer and fifth largest exporter. In 2009 it produced 247 million tonnes of hard coal of which 27% was exported. Historically the country has hosted world-class export mines with Anglo American, BHP Billiton and Xstrata all owning major coal export operations.
South Africa's primary coal export port is Richards Bay, located on the east coast. It boasts the Richards Bay Coal Terminal, a JV between the major South African coal producers (of which 69% is held by Anglo American, BHP Billiton and Xstrata) which currently boasts a designed capacity of 91 million tonnes per annum, as well as the Richards Bay dry bulk terminal which can also handle small amounts of coal. The port of Durban also handles small amounts of coal exports, and some producers are looking into developing Maputo (in Mozambique) as a major coal export terminal.
Export Coal Markets
Global consumption of thermal coal has risen by 77% since 1990, with essentially all of the increase accounted for by China and India (see graph below). Richards Bay thermal coal exports to Asia have grown 237% since 2008, making Asia the largest export market for South African thermal coal.
South Africa accounted for almost half of India’s steam coal imports in 2009, shipping over 20 million tonnes to India versus 8 million tonnes in the prior year. India’s demand for thermal coal is being driven by its growing need for electricity. India’s installed electric generation capacity stands at 170 gigawatts (“GW”), with coal-fired generation accounting for 54% of the total. Power capacity has grown at an annual rate of nearly 5% since 1990, with coal-fired capacity expanding closer to 4% annually.
India’s current power supply is about 10% short of meeting peak demand. India’s government estimates the country’s power requirements to grow to 800-950 GW by 2030, representing annual growth of 89% from current levels. The near-term plan is to add 772 GW of capacity between 2007 and 2012, of which only about 37 GW has been added to date.
India’s thermal coal consumption has increased accordingly, rising 6% annually from 1990 through 2009. However, domestic coal supplies have not kept up, resulting in rising coal imports. India’s imports of thermal coal were estimated at 44 million tonnes in 2009. The government has stated that it expects the domestic gap between consumption and production off all coal to be near 84 million tonnes for the year ended March 2011, and 142 million tonnes for the following year (recently raised from 121 million). This gap will likely be met by imports.
The growth in Chinese appetite for thermal coal is directly related to the expansion of its power sector. Power generation capacity has grown at an annualized rate of over 10% since 1990, reaching 797 gigawatts (“GW”). Thermal generation capacity has expanded at a similar rate, and accounts for a substantial 75% of total capacity. Chinese officials have estimated that total power capacity should nearly double to 1,500 GW in 2020, including 1,000 GW of thermal generation. This represents a growth rate of 4-5% annually for thermal capacity.
China is well endowed with coal resources and has historically imported very little coal. That has changed in recent years, as demand has outstripped domestic supplies and imports of thermal coal soared to over 100 million tonnes in 2009. Overall coal imports for 2010 were around 165 million tonnes, up 31% from the prior year, with imports coming mainly from Indonesia, Australia, Vietnam and Russia.
Looking ahead to China’s 12th 5-year plan (2011-2015), the government appears focused on consolidating a very fragmented coal industry from over 111,000 players to about 4,000, with several large companies expected to account for a majority of the market. While China’s power capacity continues to expand, the near-term focus for the coal sector will be consolidation and rationalization. This may prove to be a positive backdrop for on-going growth in China’s coal imports, and therefore constructive for overall global thermal coal fundamentals.
Global metallurgical coal production in 2007 was 170 – 180 million tonnes. Export demand is driven by the metal refining industry as metallurgical coal is a cost effective replacement for coking coal and other applications include iron ore pelletizing, PCI for blast furnaces, calcining for electrode manufacturing and ferroalloys.
Asia dominates the demand for metallurgical coal (83% of global imports) and is expected to comprise 95% of expected export demand growth.
Domestic Coal Markets
Forbes Coal sells its high quality thermal coal directly to independent industrial companies in South Africa at a US$40 - $50 tonne premium over companies that sell thermal coal to state-controlled power utility Eskom. Our domestic sales are at market prices (approximately US$80/tonne) compared to low quality coal sold to Eskom (sells at US$20/t-US$30/tonne).
Domestic demand for metallurgical coal has grown 11.6% since 2000. Forbes Coal is one of only four major South African metallurgical coal producers and is targeting sales to local steel and metal makers.