South Africa's domestic and export coal industry is tentatively bullish about a post-coronavirus recovery after weathering the initial supply disruptions and recently experiencing an increase in export demand.
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Speaking at the 2020 Coal Industry Day Online Edition on Aug. 20, panelists discussed the current state of coal production in South Africa, developments in key export markets as well as the future of coal in the global energy mix.
Junior miners hardest hit
Like many coal producing nations, South Africa experienced numerous difficulties as the coronavirus pandemic developed, with limited scope for production or exports.
Xavier Prevost, senior coal analyst at XMP Consulting, said South Africa's junior miners -- which produced a combined 44.2 million mt last year -- in particular had been hardest hit by the pandemic.
While the major producers were comparatively unaffected, the difficulties faced by juniors could be of greater significance in the long term, given the move by major coal miners to distance themselves from thermal coal.
As well as domestic production facing difficulty, the ramifications of the pandemic for the broader seaborne market were also bearish, Prevost said, highlighting lower prices and production in other key producing nations Indonesia, Australia and Russia, as well as weaker demand from China.
Looking ahead, Prevost discussed the relative stagnation in South African coal production because of limited new investment in bringing new mines online.
Prevost said over the last 10 years, total production had remained around 250 million mt, showing no signs of growth in that time.
Post-coronavirus supply and demand
India is by far the largest export destination for South African coal, so it would be no surprise that panelists closely linked the recovery of South Africa's export business to Indian demand.
Divyesh Kalan, Executive Head at Makoya Advisory, Puneet Gupta, CEO of CoalShastra, Sajid Hussain, Chief Representative for Pakistan at VISA Resources, Greg Hunter, Director for Africa business development at Noble Group, and Jacques Jonker, Managing Director of Coalvest, discussed the current opportunities in the seaborne market.
The coronavirus' impact on Indian coal demand was a key talking point. India's GDP had been forecast to fall in the current (April-March) financial year, Gupta said.
Since the onset of the pandemic, coal imports by India have dropped sharply year on year, but rising steel prices had signaled some positive indicators more recently as India primarily uses South African coal for its steel and sponge iron sectors, Gupta said.
This had led to an increase in trade over the last few months, with Gupta describing recent trade in South African coal to India as more of a "V-shaped" recovery.
Furthermore, Gupta highlighted recent signals from the Indian government that spending could increase to aid a post-coronavirus recovery, adding to the current bullish mood around the market.
Indian domestic production to have less impact on South Africa
In recent months, the Indian government has taken steps to raise domestic coal production with a view to reducing its import dependency. The panelists argued that despite this initiative, South African coal exports would likely find a home in India for the foreseeable future.
"The fact of the matter is [India] doesn't have the quality of coal wanted by the sponge iron sector," Gupta said. "It will not be a direct impact on the South African market."
Instead, the increase in domestic production would have greater impact on the cement and power sectors, he added.
Noble's Hunter said: "South African coal is very complimentary in spec to the Indian market... there will always be a home for South Africa coal in India."
Furthermore, the upcoming festival period in India was adding further bullish price sentiment to the market, Gupta said.
Looking at other emerging markets for South African coal, Vietnam was briefly discussed as its growing demand for seaborne coal had become one of the few bright spots of the last year.
Demand might slow a little, Hunter said, as buyers in Vietnam had been purchasing large volumes of coal and would be well stocked, but ultimately it would continue to be a source of import demand for the time being.
South African coal has favorable specifications, which is attractive to buyers in these emerging markets, such as Vietnam, Hunter said.
Broader seaborne market slow to respond
The panelists looked at the broader seaborne market and still saw signs of weakness. While the coronavirus pandemic is having a large impact on the market, they were quick to point out the sentiment in the market before the pandemic was still relatively bearish.
"[Coronavirus] exacerbated what was going to be a pretty soft market," Hunter said. "One of the things we've certainly seen in the market is there hasn't been a significant supply side response to COVID in general."
In fact, the panelists said that of all the major exporting nations, only Colombia had really displayed any genuine supply response to the weaker market.
Looking ahead, the panelists said the strong growth in coal-fired power generation in numerous developing nations around the world would remain a firm support for the export industry, although the near-term outlook was understandably more muddied and tied up with the course of the coronavirus pandemic.