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South Africa eyes more of its coal for domestic power market

30 Jan 2013 19:05:51 | csd

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South African exports of thermal coal could be curtailed in the near future, as the Pretoria government has designated it as a 'strategic natural resource', its mining minister said on Wednesday.

Minister of mineral resources Susan Shabangu said accelerated demand for coal, an increase of international coal prices and the emergence of an export market for lower-grade coal have constrained the amount of coal historically sold to utility Eskom - South Africa's biggest generator.

"A task team will soon provide recommendations that will inform the strategy to place this sector on a positive growth path," the minister said. It is undecided if an export levy will be placed on coal at this stage.

Market sources were unsurprised by the announcement, as other coal-producing countries have made similar noises.

"It's no surprise they're moving in a similar direction to the Indonesian government," said a coal markets analyst. "I guess the main impact on price will depend on how they fix/set the domestic price, as my understanding is that has reduced available coal for international sale anyway."

Speculation in recent months suggested some of the production or other elements of the coal chain could be nationalised.

The minister said talk of nationalisation had been set to one side, but did add she was keen that the "stranglehold that two or three companies have had for so long over this sector" is loosened.

Reshaping deals

According to Eskom, about 77% of the primary energy needs for Africa's largest economy are met by coal. The utility has been looking to reshape its deals for coal supply recently.

Eskom withdrew its intervention in the merger proceedings before South Africa's Competition Tribunal relating to Anglo-Swiss commodities trading giant Glencore's purchase of Swiss miner Xstrata.

A framework was established between Glencore and Eskom to cooperate on a "mutually beneficial basis", which would dictate deals on existing and future coal-supply agreements, a statement from the two said earlier in January.

The competition watchdog approved the merger in South Africa on 22 January. Xstrata is one of the largest coal producers in South Africa, along with other international conglomerates Anglo American and BHP Billiton.

Meanwhile, Australian-listed miner Universal Coal said on Tuesday it owns 74% of the Roodekop coal project in the country, after it exercised an option on the asset. The project contains about 84m tonnes of thermal coal. FOR

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