South Africa endures worst daily power outage; limited impact seen for coal exports

South Africa is experiencing its worst daily power outages amid forced cuts to "stop the national grid to fail," sources said July 4, which is set to have a significant impact on the coal exports.

The country's state-owned utility Eskom has implemented the outages, also known locally as load shedding, which are now exceeding 10 hours a day, as the country endure its worst power crisis in the history, sources said.

The outages have barred some South African miners to export low and mid CV coals to the spot markets to some extent, an Indonesia-based trader said, adding that primarily the country's power plants require these grades to generate electricity.

Demand in Asia, Europe

Despite the outages, South African power plants already have surplus low and mid CV coals, a Singapore-based trader said. "Even if the daily power outages stabilize in near term, the country's exports are unlikely to get impacted in a remarkable manner," the trader added.

South Africa has recently shifted its export focus to Asian countries after European demand for the fuel dropped. India generally procures South African low-mid grade coal to cater to the requirement of the sponge-iron sector.

"Indian buyers' imports are mostly mid/low cv coal with regular demand," a Pakistan-based trader said. "In this scenario the South Africa prices may had to climb because of export shortfall and regular India demands but we are seeing continuous decline in prices since months, I guess the main reason is probably India imports big volumes from Russia and we may not see big increase in prices after SA crisis, the reason of declining in price is something else may be overall global activities are shortened."

The trader added that Pakistan buyers have started importing and the new IMF package may increase imports in the coming months.

"The main issue yet is banks not confirming Pakistan LC's so what traders are doing they are taking LC's from Pakistan to their Dubai companies and issuing LC's from Dubai companies to sellers."

During the week, South Africa exported 54,900 mt of thermal coal into the Netherlands, according to S&P Global Commodities at Sea data.

"It wouldn't surprise me if a bit more South Africa coal is starting to find its way into Europe," a Europe-based trader said. "With the higher API2 prices and depressed demand in Asia, some of this coal is starting to make sense economically to bring to Europe, but still, I wouldn't expect big quantities."

Additional participants believe that there is latent demand in the sector, but these are not reflecting in the spot markets as buyers still expect the prices to bottom out which could lead to a spur in exports to Indian consumers.

Impact on exports

However, alternative sources have said that the outages are unlikely to have an effort on coal exports unless the issues become severe, and the impact will currently be on domestic material only.

There is "no correlation" between the power crisis stabilizing and exports to India and Pakistan potentially increasing, a South Africa-based trader said. "There is [also] limited correlation between domestic mid CV coal and export mid CV coal."