Price rise revitalises southern African coal prospects

The speed of recovery in coal prices has caught almost everyone by surprise. Since the beginning of the year, thermal coal prices have more than doubled; South African coal sold FOB Richard’s Bay has jumped from below $50/mt mid-January to $99.7/mt November 9.

The upturn appears to have put an end to a prolonged price slump that saw new projects cancelled and existing output slashed in an attempt to rebalance a heavily over-supplied market. Governments now appear keen to seize the opportunity, nowhere more so than in Mozambique and Botswana.

Both southern African countries possess vast coal resources, but have produced very little because of the lack of transport capacity to access export markets.

However, they responded to the rapid downturn in coal prices in 2011 very differently.

Investment had already been committed to Mozambique, so Maputo and some mining firms decided to press on regardless, anticipating that prices would eventually recover, although Rio Tinto did pull out of the country.

In contrast, binding contracts on mine and rail projects had not yet been signed in landlocked Botswana, so Gaborone decided to shelve its coal export plans.

Now, following the lead set by International Coal Ventures Ltd, representatives of Indian coal importers have visited Maputo in recent weeks to negotiate the terms of new concessions. Jindal Steel & Power is to resume production of 3.5 million mt/yr at it Chirodzi mine and Brazil’s Vale is ramping up production on its Moatize mine to 22 million mt/yr.

These projects can all take advantage of the three rail lines that now run from the coal-rich Tete Province in Mozambique to the Indian Ocean ports of Beira and Nacala.

At the same time, a deal was signed in September for the construction of a new coal export railway from Botswana to a planned new coal port at Techobanine in the far south of Mozambique. Like Mozambique, the government of Botswana believes that it could eventually produce 100 million mt/yr of coal.

Neither appear too concerned about the gradual tightening of air pollution and carbon emission standards around the world, which suggest that global coal consumption is likely to wane over the next few decades. But this may in fact represent a race to get coal out of the ground before its use becomes untenable.

There is a heavy element of irony in the situation. The developed countries of the world that are the historic cause of global warming industrialized on the back of the exploitation of a large proportion of their coal reserves.

Countries in Africa --- those likely to be hardest hit by global warming – may have only a short window to make the most of their own coal resources, but in so doing will only add to the dangers of climate change.