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South African coal exports hit by train derailment; lines closed

Highlights

South African thermal coal prices rise on knee-jerk reaction

Uncertainty around resumption of services weighing on sentiments

Price rise may not sustain amid muted demand from Indian buyers

  • Author
  • Vaibhav Chakraborty    Sarah Matthews
  • Editor
  • Giselle Rodriguez
  • Commodity
  • Coal Metals

A train derailed May 18 at Vreihed, South Africa, leading to a closure of both rail lines operating on the route, Transnet Freight Rail OCC Tactical Volume Planning said May 18.

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The derailment occurred when Train 6000 was shunting at VHO. Both lines will be closed until further notice, the company said, without providing an estimated time for the return of train services on the route.

Transnet Freight Rail operates as the main logistics provider for South African exports.

South African thermal coal exports have seen steady flows in recent weeks due to stable demand from India's sponge iron sector, which has allowed prices of FOB Richards Bay 5,500 kcal/kg NAR coal to sit in a narrow range around the $90/mt mark.

South Africa has exported 2.8 million mt of thermal coal so far May, after exporting 4.8 million mt in April, according to S&P Global Commodities at Sea data.

Knee-jerk reaction on prices

South African thermal coal prices may rise in the immediate aftermath of the derailment as uncertainty around the timeline of the return of services is expected to raise concerns over supply tightness, market sources said.

Platts, part of S&P Global Commodity Insights, assessed FOB Richards Bay 5,500 kcal/kg NAR coal at $93.95/mt May 20, up $1/mt since May 17.

"The derailment is expected to shave off 700,000-800,000 mt of thermal coal shipments for this month, and RBCT (Richards Bay Coal Terminal) could ship 3.8 million mt-4.0 million mt vs earlier expected 4.5 million mt-4.8 million mt," Pranay Shukla, head of dry bulk freight and commodities research at Commodity Insights said.

Shukla also highlighted that stockpiles at the RBCT have come down week on week and stood at 2.1 million mt as of May 20, down from 2.2 million mt a week ago.

However, the immediate rise in prices may not be sustained longer as demand from India, the largest South African thermal coal importer, is expected to slow down as the Monsoon season approaches, market participants said.

Falling prices amid a lack of demand from the European market have allowed price-conscious buyers like India to step up South African thermal coal purchases with buyers from India consuming nearly 50% of the overall thermal coal exports from South Africa.

"No such great demand from India considering sponge (iron) prices and monsoon is arriving," an India-based trader said.

"I don't see the demand anywhere. India are out of the market because of the monsoon. I don't think the derailment will have an impact. I don't even think you'll see any traders step in the market to see if there's a spike in the price for South African coal," a US-based trader dealing with the South African thermal coal market said.

Some market participants highlighted that such derailment incidents on South African rail networks aren't unusual as in 2023 there were similar incidents that did not lead to a major downfall in the country's overall exports.

"There were two similar derailments last year which had minimal impact, even though there was market demand for RBCT at the time," the US-based trader said.