South Africa's Lockdown Extension by two Weeks leaves Coal Mining Sector in a Fix

As per the latest updates, South African government that had announced lockdown for 21 days till 16 Apr'20 in the wake of COVID-19 outbreak in the country has extended the same till 30 Apr'20.

While the coal mining operations of the companies supplying coal to country's power utility firm Eskom has been allowed after being deemed as essential commodity, other miners have been directed to completely halt their operations.

Now with this extension of lockdown further by two weeks, the coal mining companies are worried if they would have to continue their operational halt or government will give some leeway to the mining companies.

Mineral Council's meeting with DMRE

The Minerals Council of South Africa (MCSA) recently had meeting with the Department of Mineral Resources and Energy (DMRE) along with labour unions and other stakeholders to establish a way forward given the constraints resulting from the Covid-19 pandemic.

The final outcome of the meeting had not been released and the MCSA commented that when the operations are resumed as an industry, it will not be business as usual. While it is still premature to comment on when such a resumption may be, it will depend on decisions that government as a whole will take on the approach following the end of the current lockdown period, and it will be within a holistic view of the entire economy.

Impact on coal miners

According to industry experts, small to medium-sized mining companies without the benefits of diverse income would be most heavily affected by the lockdown. Underground mines will suffer a lot too as leaving underground areas idle for more than a few weeks starts causing real problems.

However, the large companies supplying coal to Eskom had a better chance of emerging from the lockdown even some remaining relatively unscathed. Also, these companies are already accustomed to production interruptions owing to strikes and community agitations.

South African thermal coal price plunge

Amid the ongoing lockdown, South African thermal coal prices are on a downtrend except for few days when government allowed the ports to continue their operations after lockdown announcement.

The current offers for RB1 grade coal are being heard at USD 60-61/MT, RB2 is at USD 47-48/MT and RB3 is at USD 38-40/MT, FoB RBCT port basis.

As India (S. Africa's biggest export market) is under complete lockdown and 12 major ports in India have already declared force majeure, majority of sponge iron units are shut and no new coal trade is taking place in the country.