South African coal miners turn to trucks as rail service squirms

South African coal miners turn to trucks as rail service squirms

Trucking coal costs about four times more than rail, according to miner Menar. It has started using trucks but said the high coal prices mean miners can absorb the cost, for now.

Mining companies in South Africa have turned to shipping coal to ports to meet a surge in European interest since the conflict in Ukraine began, bypassing the disintegrating rail infrastructure they fault for billions of dollars in lost income. Poor maintenance, an absence of extra parts for trains, copper cable burglary and vandalism have disturbed state logistics firm Transnet’s cargo rail administrations, causing coal and iron ore exports to fall in recent years. In April, Transnet pronounced force majeure on agreements with makers however with coal costs close to record highs, mining firms including Glencore (OTC:GLNCY) have gone to trucks, one industry source said. A Glencore representative declined to remark.

“The industry at large are on their knees, so they are resorting to drastic measures,” said Clifford Hallatt, chief operating officer at Canyon Coal, a joint venture between Menar and commodity trader Mercuria.

At Canyon Coal’s Khanye Colliery some 90 km (55 miles) from Johannesburg, it takes about 80 trucks – each carrying 34 tonnes – to replace one average Transnet train, making it unsustainable financially, boosting emissions and clogging roads.

But the company says it has little choice.

A year ago, it was loading five or six Transnet trains a week from Khanye. That has dropped to just two or three now, and its stockpiles of coal have been mounting, Hallatt said.

COAL PRICES ROCKET

Demand, meanwhile, has shot up since the war in Ukraine. The European Union has announced a ban on Russian coal and mining companies in South Africa say they are fielding calls from European countries looking for imports.

As for prices, Australian thermal coal futures were trading at about $80 a tonne at the start of 2021. A week after Russia sent its forces into Ukraine, they rocketed to a record high of $440 and are now trading at $326 a tonne. Menar is trucking about 120,000 tonnes of coal a month and plans to increase that to 200,000 tonnes, Hallatt said.

As a whole, South African coal miners are putting about 400 trucks on the road a day, trucking some 6 million tonnes of coal on an annualised basis, according to the industry source. “We are aware that there’s been an increase in the number of coal trucks now running into the ports and that’s not a good situation,” Transnet Freight Rail Chief Executive Sizakele Mzimela told Reuters.

Transnet shipped 58.3 million tonnes of coal to the Richards Bay Coal Terminal last year, 24% below its annual capacity of 77 million tonnes. Transnet expects an improvement in the delivery of coal this year, to about 60 million tonnes. But limited rail capacity cost bulk commodity exporters at least 35 billion rand ($2.2 billion) last year in lost revenue, according to South Africa’s Minerals Council.

Transnet’s Mzimela said the state-owned firm feels the industry’s pain. “The frustration is more about the lost opportunity, because of course if we were able to move more, we would benefit, they would benefit. We are tied at the hip,” she said.

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