Diversified company Exxaro Resources expects its coal production – excluding buy-ins – to increase by 3% and its sales volumes by 1% for the 2022 financial year ending December 31, despite logistical constraints throughout the year and the disposal of the Exxaro Coal Central operations on September 3, 2021.
“The impact of the Russia-Ukraine war and renewed Covid-19 infections and lockdowns, mostly in China . . . further disrupted supply chains, fuelled inflation, significantly increased energy cost[s] and slowed economic growth.
“As a result, commodity markets were mixed and volatile throughout the period under review,” Exxaro FD Riaan Koppeschaar said in a preclose statement issued on December 1.
He said that, after a strong finish to 2021, the global economic expansion lost momentum during 2022. A 5.8% growth rate in 2021 decreased to 2.8% in 2022, with financial market conditions deteriorating during the second half of the year, presenting the emerging risk of a global economic recession.
During this year, Exxaro’s supply into global thermal coal markets was influenced by the Indonesian government’s temporary ban on exports, inclement weather conditions, rail challenges in South Africa and labour issues in Australia.
Additionally, the Russia-Ukraine conflict caused uncertainty among global markets as energy insecurity surfaced in Europe, favouring South African seaborne thermal coal trade as international sanctions for Russian coal came into effect.
For most of the year, a tight global gas market supported thermal coal demand and prices. The substantial increase in gas prices, reduction of gas supply from Russia, the implementation of a European Union embargo on Russian coal imports, and the tightness of higher calorific value (CV) coal supply sustained strong pricing of high CV coal throughout the third quarter, Exxaro reported.
However, the company warned that low water levels in Europe’s Rhine river, along with high gas and coal inventories at some of Europe’s power utilities, as well as mild winter temperatures in October and November, have sent coal prices on a downward trajectory since the start of the fourth quarter.
Strong Indonesian output and weaker import coal demand in China and India maintained the downward pressure on the lower CV coal pricing in the first three quarters of the year, the company said.
However, Exxaro expected China and India’s imported coal demand to pick up in the fourth quarter, while ample Indonesian supply and increased supply of discounted Russian coal will keep low-energy coal prices under pressure.
Meanwhile, domestic demand for Exxaro’s high CV coal remained stable, with the company expecting this segment to continue performing well.
As a result of ongoing constraints in terms of rail logistics, Exxaro said that it was selling export coal in the domestic market to exporters that had access to export capacity, while also turning to trucking and exporting coal through alternative ports.