Business / Business News

Sungula Nkabinde
1 minute read
3 Oct 2015
8:00 am

Eskom is the coal industry’s saviour

Sungula Nkabinde

South Africa’s coal mining industry would be far worse off than it is right now were it not for Eskom, and should put the troubled energy parastatal at the centre of any plans to revive the sector, XMP Consulting senior coal analyst Xavier Prévost says.

Picture: Thinkstock

He said that, after the energy crisis of 2008, Eskom set out to build a stockpile of 45 million tons of coal and that this led to an in crease in coal prices. Said Prévost:

“Because Eskom is such a large user, other users of coal in the local market have had to increase their prices, which went up from around R60 to R80 per ton to as high as R120 to R200 per ton after 2008.”

Meanwhile, export prices at the Richards Bay Coal Terminal are around R50 per ton. With China no longer buying South African coal due to its high sulphur content, local production is being driven by local consumption. And this is a model Prévost believes South Africa should follow, saying that exports will “never recover their allure”.

But, to do that, SA needs to consume more than the 26 million tons per annum currently used (apart from Eskom and Sasol), to be able to use some of the ±70 million tons exported, at such low prices.

However, if Eskom reduces its current prices, or cancels its cost-plus agreements with the big mines, it could destroy what is left of profitability in the industry