South African coal miners turn to trucks as rail service deteriorates

By Nelson Banya and Helen Reid

JOHANNESBURG (Reuters) – Mining firms in South Africa have resorted to trucking coal to ports to satisfy a surge in European demand because the battle in Ukraine began, bypassing the deteriorating rail infrastructure they blame for billions of {dollars} in misplaced income.

Poor upkeep, a scarcity of spare components for trains, copper cable theft and vandalism have disrupted state logistics agency Transnet’s freight rail companies, inflicting coal and iron ore exports to fall lately.

In April, Transnet declared drive majeure on contracts with producers however with coal costs close to file highs, mining companies together with Glencore have turned to vehicles, one business supply mentioned. A Glencore spokesperson declined to remark.

Trucking coal prices about 4 instances greater than rail, in line with miner Menar. It has began utilizing vehicles however mentioned the excessive coal costs imply miners can take in the fee, for now.

“The business at massive are on their knees, so they’re resorting to drastic measures,” mentioned Clifford Hallatt, chief working officer at Canyon Coal, a three way partnership between Menar and commodity dealer Mercuria.

At Canyon Coal’s Khanye Colliery some 90 km (55 miles) from Johannesburg, it takes about 80 vehicles – every carrying 34 tonnes – to switch one common Transnet practice, making it unsustainable financially, boosting emissions and clogging roads.

However the firm says it has little selection.

A 12 months in the past, it was loading 5 or 6 Transnet trains per week from Khanye. That has dropped to simply two or three now, and its stockpiles of coal have been mounting, Hallatt mentioned.

COAL PRICES ROCKET

Demand, in the meantime, has shot up because the battle in Ukraine. The European Union has introduced a ban on Russian coal and mining firms in South Africa say they’re fielding calls from European international locations on the lookout for imports.

As for costs, Australian thermal coal futures have been buying and selling at about $80 a tonne in the beginning of 2021. Every week after Russia despatched its forces into Ukraine, they rocketed to a file excessive of $440 and are actually buying and selling at $326 a tonne.

Menar is trucking about 120,000 tonnes of coal a month and plans to extend that to 200,000 tonnes, Hallatt mentioned.

As an entire, South African coal miners are placing about 400 vehicles on the street a day, trucking some 6 million tonnes of coal on an annualised foundation, in line with the business supply.

“We’re conscious that there is been a rise within the variety of coal vehicles now working into the ports and that is not a superb state of affairs,” Transnet Freight Rail Chief Govt Sizakele Mzimela advised Reuters.

Transnet shipped 58.3 million tonnes of coal to the Richards Bay Coal Terminal final 12 months, 24% beneath its annual capability of 77 million tonnes. Transnet expects an enchancment within the supply of coal this 12 months, to about 60 million tonnes.

However restricted rail capability value bulk commodity exporters not less than 35 billion rand ($2.2 billion) final 12 months in misplaced income, in line with South Africa’s Minerals Council.

Transnet’s Mzimela mentioned the state-owned agency feels the business’s ache.

“The frustration is extra in regards to the misplaced alternative, due to course if we have been in a position to transfer extra, we might profit, they’d profit. We’re tied on the hip,” she mentioned.

Transnet freight rail capability constraints https://graphics.reuters.com/MINING-INDABA/LOGISTICS/myvmnqwqepr/chart.png

OTHER OPPORTUNITIES?

Mzimela mentioned Transnet was open to miners investing in their very own rolling inventory, in addition to permitting personal rail operators to run on some container route slots. But it surely doesn’t plan to open its iron ore and coal strains to non-public companies.

That falls in need of what mining companies, who’re serving to to fund personal safety to fight theft alongside rail strains, need.

Menar mentioned it was pushing to put money into state-owned rail strains and procure its personal locomotives and wagons as a part of makes an attempt to beat the nation’s infrastructure bottleneck.

Hallatt advised Reuters that Menar would additionally take into account working a piece of the majority commodity rail strains, though that is an possibility Transnet’s Mzimela rejects.

Because the safety collaboration began, the variety of drones monitoring the coal line from Mpumalanga to Richards Bay has greater than doubled and incidents have fallen to about 19 per week from 35 beforehand, in line with Transnet.

The copper cables carrying electrical energy from substations alongside the road to signalling programs are usually stolen, for instance, in addition to different metallic components alongside the monitor.

For the primary time, South Africa was ranked among the many 10 least engaging jurisdictions for mining funding within the Fraser Institute’s annual mining business survey final 12 months.

Gabrielle Reid, affiliate director for strategic intelligence at S-RM, mentioned the logistical challenges have been now prompting some South African miners to look exterior the nation for progress alternatives.

“Our most up-to-date experiences with rail in South Africa make for a compelling diversification case,” July Ndlovu, chief govt of thermal coal producer Thungela Assets, advised analysts on a name in March.

“Given the focus that we have in a single geography and the concentrated danger related to that infrastructure, I believe it stands to cause that we must always take a look at different alternatives.”

(Reporting by Nelson Banya and Helen Reid; Modifying by David Clarke)