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Exxaro says Eskom woes to hit coal production

The supply-demand tandem is likely to keep prices for coal used in power plants under pressure in coming months.

South African miner Exxaro Resources expects its coal production to fall by 5% by volume in the first half of 2019, mainly due to reduced demand from struggling state-owned power utility Eskom, it said on Wednesday.

It added it expects domestic coal demand and pricing to remain stable for the remainder of the year, but does not see a recovery from the international price/ demand situation.

Slowing economic growth in China is weighing on demand expectations for thermal coal in the world’s biggest market for the fuel, while global moves towards cleaner energy are compounding problems arising from a glut in supply.

The supply-demand tandem is likely to keep prices for coal used in power plants under pressure in coming months.

Exxaro Finance Director Riaan Koppeschaar said in a statement a contractual agreement with Eskom would help mitigate the reduced volumes at home.

“China will continue to influence the supply/demand balance in the Pacific with related potential price volatility,” he added.

Coal capital expenditure (capex) in 2019 is expected to be 9% lower than guided in March, primarily because of delays with the Grootegeluk 6 plant expansion project.

Delays in finalising approvals for Thabametsi coal-fired power plant and lenders withdrawing their funding to old coal technology coal-fired power stations also contributed to the lower capex spend forecast.

Exxaro is also feeling the impact of Group Five’s cash-flow problems which resulted in the struggling construction firm being placed under “business rescue”, similar to US Chapter 11 bankruptcy protection in March.

During the first quarter, Exxaro was forced to terminate its contract with now de-listed Group Five, who was responsible for parts of the Grootegeluk 6 expansion.

Responding to South Africa‘s long-delayed carbon tax, which became law in May, Exxaro said it would have a low impact on its organisation as its relevant emissions were not significant.

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