Coal markets rocked by Eskom’s ambitious plan

Eskom’s plan to buy an additional 45-million tons of coal to replenish depleted stockpiles has been met with incredulity internationally, with analysts saying it overlooks severe global coal supply constraints, logistical challenges and price concerns.

This could be the first time that SA, a net exporter of coal, imports coal. A New York-based analyst, who declined to be named, said on Friday Eskom’s plan could be hampered severely by tight global supply caused by Indian and Chinese demand.
“The markets here have been abuzz with the news (of Eskom’s coal procurement plan),” the analyst said. There was concern that Eskom had not taken into account extraneous factors that could affect its plans.

Coal supplies have been constrained severely by disruption in Queensland, Australia, one of the world’s top coal-producing regions, where torrential rains and flash floods led to six big coal producers, including Rio Tinto, BHP Billiton and Xstrata, declaring force majeure, saying they could miss coal deliveries.

Eskom said last week it would buy the 45-million tons of coal over and above its running requirements of 125-million tons a year.

The additional coal would be added over the next two years to raise coal reserves at power stations to at least 20 days’ supply.

Brian Dames, new head of Eskom’s primary energy, generation and enterprise cluster, conceded that the procurement would have a significant effect on operating costs, giving rise to higher electricity prices.

BusinessDay