Exxaro Resources said yesterday that although global inflation was on a downward path, underlying inflationary pressures persisted as it expected to report decreased production and sales as lower coal prices continue to affect its coal business.
In its pre-close message, the largest coal miner in South Africa said that it expected total production to drop by 3.4% to 20.7 million tons and sales by 7.2% to 19.5 million tons in the period to end June compared to the previous six months to end December.
The group flagged that thermal coal production is expected to decrease by 7%, mainly due to lower demand from Eskom at its Grootegeluk mine, in Limpopo, based on their latest internal planning requirements.
“Metallurgical coal production is expected to increase by 57% as the GG6 plant now fully ramped up. Coal buy-ins are expected to be higher, driven by logistical challenges and timing of sales obligations,” it said.
Exxaro Finance director Riaan Koppeschaar said despite the continued challenges of high inflation, tightening financial conditions and geopolitical conflicts, the global economy has so far managed to avert a recession. This negative global sentiment was, however, evident throughout the period under review and weighed on commodity markets.
“In respect of Exxaro’s key commodities, the average benchmark API4 Richards Bay Coal Terminal (RBCT) export price for the 2023 first half is expected to average $127 (R2 344), while in the second half of 2022, it was $265 per ton, a significant decline from the previous six months and the iron ore fines price for the 2023 first half is expected to average $117, compared to the 2022 second half which was $101 per dry metric tonne, cost and freight (CFR) China,” he said.
The group reported during the first half of 2023, seaborne thermal coal prices had remained under pressure due to weak demand in Europe and north-east Asia.
“Both thermal coal and gas prices declined significantly to levels last recorded two years ago. Europe remains very well stocked for both gas and thermal coal. Stronger renewables availability also boosted baseload generation, further reducing the role of gas and thermal coal in the European energy mix,” it said.
Exxaro said since the beginning of 2023, seaborne iron ore prices had been supported by positive market sentiment for demand recovery for steel in China.
“This was before the announcement of China’s government considering potentially limiting or even reducing crude steel output during 2023, which resulted in declining seaborne prices.
“China’s steel production quotas were confirmed in May, at local, and not at a national level, limiting the adverse impact on iron ore prices. Iron ore supply was strengthening towards the end of the period under review, although demand remained weak. However, positive market sentiment returned in response to the expectation that the Chinese government would further relax policy restrictions in the real estate market,” it said.
Looking ahead, the group said following a 1.1% contraction of gross domestic product in the fourth quarter of 2022, South Africa had avoided a technical recession during the first quarter of 2023, with a modest 0.4% expansion.
“During the first half of 2023, the rand lost significant value against the major global currencies. Intensified load shedding with the perceived risk of a potential grid collapse, a widening current-account deficit, prospects of a widening fiscal deficit, US dollar strength, and loss in investor interest following a political dispute between South Africa and the US, related to South Africa’s relations with Russia, were the main reasons attributed to the rand weakness.
“Rand volatility is expected to remain elevated during the second half of 2023,” it said.
BUSINESS REPORT