Coal in South Africa, which has the largest proven reserves of the fuel on the continent, is at risk of becoming stranded following a plunge in prices and collapse of the nation’s rail network.
Prices for the dirtiest fossil fuel have slumped about 70% after reaching a record in 2022. A train collision this week all but stopped supplies to the Richards Bay Coal Terminal for exports, adding to the struggles of freight operator Transnet SOC Ltd. Plunging prices have narrowed the arbitrage of shipping the mineral to ports on trucks.
Transnet said it expects to resume operations fully on the line by Saturday but the collision underscores the crisis facing the operator. The state-run company manually manages its network and doesn’t have enough wagons to transport coal. Lower exports have prompted miners to cut jobs.
Deliveries to Richards Bay Coal Terminal likely plunged for a sixth straight year in 2023 to the lowest in three decades. With rising stockpiles, smaller miners may chose to stop production.
“Transnet’s failure will start causing coal mines to shut down,” said Vuslat Bayoglu, managing director at miner Menar. Operating without options to use trucks or working rail allocation is non-viable, he said.
Thungela Resources Ltd., South Africa’s biggest coal miner by market value, hasn’t been shipping the fuel on trucks, the company said in an emailed response. Exxaro Resources Ltd. continues to “truck coal opportunistically,” a spokeswoman for the company said.
Transnet’s performance has deteriorated in recent years as the firm faces multiple challenges including derailments, equipment shortages, vandalism, corruption and poor weather.
Surging coal prices in the wake of Russia’s invasion of Ukraine that sent Europe searching for alternative suppliers resulted in South African miners dispatching thousands of trucks a day to transport the fuel to the coast. The drop in prices has reversed that trend.
“It’s been our concern that the unavailability of trains to Richards Bay and other ports will lead to massive retrenchments,” Livhuwani Mammburu, spokesman for the National Union of Mineworkers, said by phone. The lack of trains will also affect the businesses of iron ore and other minerals, he said.
Transnet has a turnaround plan to improve the performance of its rail network to the ports it operates and has requested funding from the government to reach the higher targets. It had set a goal of shipping 60 million tons of coal to Richards Bay last year, though it’s been on pace to ship less than 50 million tons.
Total volumes at Maputo Port in Mozambique surged 16% to 31.2 million tons in 2023, benefiting from the woes in South Africa.
The problems for Transnet trains are bound to remain “due to the inherent risks of outdated manual systems and poor operational control,” Gavin Kelly, chief executive officer of the Road Freight Association, said in a statement. The collision “exposes vulnerabilities” on the main export line, he said.
