JSE-listed Exxaro Resources has warned that its coal production, including buy-ins, and sales volumes for the first half of this year are projected to decline by 6% and 7% respectively, primarily owing to reduced demand from State-owned Eskom.

In a pre-close message for the six-month period ending June 30, the company noted that, in the Waterberg region, Eskom’s offtake declined owing to operational constraints at its power stations.

While domestic demand was steady during the first half of the year, low export prices caused producers to redirect volumes to the domestic market, resulting in oversupply.

Overall, thermal coal production is expected to decline by 4%, aligned with Eskom’s reduced demand at Grootegeluk, while metallurgical coal production is forecast to decline by 24%, owing to above-normal rainfall and associated logistical disruptions in the first quarter.

Eskom sales are expected to decrease by 15%, aligned with Eskom’s internal maintenance schedules, while domestic thermal coal sales are expected to increase by 23%, driven by the redirection of export volumes to the local market and higher demand for other thermal coal products, mainly at Belfast and Leeuwpan.

Exxaro said metallurgical coal sales were forecast to decline by 26%, owing to rail disruptions in the first quarter, caused by severe rainfall.

Meanwhile, export volumes were expected to decrease by 10%, owing to rail disruptions caused by severe rainfall and a derailment in the first quarter.

Exxaro said lower capital expenditure was forecast in the first half, aligned with the standard equipment replacement cycle at Grootegeluk and the completion of infrastructure projects at Belfast in the 2024 financial year.

Exxaro also noted the impact of Transnet Freight Rail’s (TFR’s) continued disruptions, including as a result of cable theft, power failures, locomotive and wagon shortages, and deteriorating infrastructure.

Additionally, a rail wash-away in the first quarter affected Grootegeluk, and a derailment further impacted on throughput.

Despite these challenges, the Richards Bay Coal Terminal volumes improved to 54.45-million tonnes a year, up from 52-million tonnes a year in 2024, with a stronger performance in the second quarter of this year.

The company noted that, although rail execution remained volatile, there had been some improvement, particularly in Mpumalanga. The Waterberg region saw weekly train frequencies improve from two to three trains a week in the first quarter to four to five trains in the second quarter.

GLOBAL ECONOMIC IMPACTS

Exxaro noted that, in 2025, global economic activity continued to be shaped by the effects of tariffs and heightened uncertainty surrounding global trade. These impacts, spanning trade flows, inflationary effects, heightened uncertainty in global sentiment and financial markets volatility, were expected to constrain global growth.

Following a 2.8% expansion in 2024, global real GDP was projected to slow to 2.2% this year, the company said.

“Seaborne thermal coal prices are under pressure due to weak demand, exacerbated by lower natural gas prices, ongoing Russia-Ukraine peace negotiations and broader concerns over new tariffs.”

“Although European natural gas prices increased occasionally as cooler-than-expected weather boosted demand, and Colombia announced supply cuts, these factors had a muted impact on seaborne thermal coal pricing,” the company said.

Therefore, by the end of the first half, the spot API4 price traded at about $90/t.

In the iron-ore market, prices were weighed down by tariffs on China’s steel exports to the US, discussions on China’s 2025 steel production limits and broader US-China trade tensions.

Exxaro noted that the bearish pricing trend from 2024 persisted into the first half of this year. Key drivers included high stockpiles in South Africa’s key markets, lower gas prices, growth in renewables and increased nuclear energy generation.

Meanwhile, Indian domestic steel producers faced competition from cheaper imported steel, dampening demand for South African coal. Further, Indian coal production increased, largely supporting the power generation sector.

Also, higher gas and nuclear power output in Japan, Korea and Taiwan further reduced coal demand. This decline in demand caused Australian prices to fall to a four-year low of $90/t, further aggravated by the sluggish Chinese offtake.

In Europe, gas price fluctuations linked to Russia-Ukraine ceasefire negotiations marginally influenced coal markets. However, despite warm weather and strong renewable generation in Germany, consistent stock drawdowns led to lower inventories.

The API4 index fell below $90/t in the first half of this year – a level not seen since the early days of the Russia-Ukraine war. Trade tariffs and volatile pricing added to the prevailing uncertainty, Exxaro noted.

The company said, however, that since April, trade-related risks had moderated following the US reversal on reciprocal tariffs and renewed negotiations with China. These actions had a positive effect on financial and commodity markets, with equity indices, crude oil prices and the US dollar rebounding.

However, Exxaro said uncertainty remained high as the 90-day tariffs reprieve neared expiration. Confidence remained fragile owing to the unpredictability of the US trade policy.

However, while South Africa’s real GDP began the year slowly with a 0.1% quarter-on-quarter expansion, Exxaro said it remained optimistic that economic activity would improve this year, despite the uncertain global trade outlook.

“Seaborne thermal coal may find support in the northern hemisphere summer as stockpiles normalise and seasonal demand rises. European imports are expected to remain stable due to poor wind and hydro availability, coal blending needs, the renewed focus on grid stability following the recent blackouts in Spain, and the importance of price stability in the power markets,” the company said.

Domestically, Exxaro noted, improvements in economic activity could bolster coal demand, particularly as Eskom addressed its operational issues.

“As infrastructure challenges persist, we continue to actively explore all available routes to market to meet customer demand and unlock value,” the company said.

In the iron-ore market, increasing supply and muted Chinese demand remained key constraints for Exxaro’s investment in Sishen Iron Ore.

The company said India was expected to be the only market with material growth in steel production.

Further, Exxaro noted that any new US tariffs would add further volatility to equity and commodity markets.