Anthracite is a carbon-rich, high-quality coal with several fields of use, most commonly as:
Somkhele’s product has a unique application as a coke replacement and the relationship between demand and price is therefore directly associated with conditions affecting the ferrochrome, ferromanganese, ferrotitanium and iron pelletising and sintering. All of these commodities are primarily driven by steel production and demand, coupled with the availability of quality reductants on a global level.
In FY2008, coal prices and demand or coal increased significantly in line with the global commodity boom.
Since 2003, when anthracite production in South Africa reversed a declining trend and began its resurgence, domestic demand for anthracite has increased by more than 100%, driven by the metallurgical industry in particular. The growth in exports has been steady, recording more than a 75% increase during the same period.
According to published data South African anthracite producers sold 1,3 million tonnes into the inland market, and a further 1,4 million tonnes were exported during FY2008. Petmin is the largest supplier of anthracite in the country, meeting 23% of local and 64% of export demand (these percentages include Springlake’s output). In its first year of operation, Somkhele became the largest South African exporter of anthracite fines equating to 31% of total anthracite exports. Petmin’s export markets remain South America (in particular Brazil), the European Union and India, followed by North Africa and the Far East.
Given the steady increase in Somkhele’s supply to the domestic metallurgical market, in particular to the ferrochrome industry during FY2008, it is anticipated that at least 21% of market share will be reached in FY2009 and the colliery is expected to maintain the same share of South African exports as in FY2008.
Despite current uncertainty in the world market and the sudden, sharp decline in the seaborne trade of resource commodities, Petmin believes that medium- and long-term global and domestic demand for anthracite will be firm. In South Africa it is estimated that in 2007 there was already a shortfall of some 300,000 tonnes a year of reductants in the ferroalloy industry alone; evidently curtailment in production has eroded this shortfall. As Petmin’s key customers experience cost pressures, anthracite, given its price competitiveness, may well experience an increase in demand as it is used as a substitute for the more expensive coke in key metallurgical processes. Furthermore, indications are that major anthracite producing countries such as Vietnam and the Ukraine will consume more production internally, thus providing South Africa with an opportunity to service the global market. In response to this expected and sustainable growth in demand, Petmin is evaluating a second wash plant to expand its production.
In light of the rand’s volatility, Petmin will consider entering into currency hedges for a portion of its exports in order to protect its cash flows and earnings.
Silica is the name of a group of metals composed of silicon and oxygen, the two most abundant elements in the earth’s crust. Silica is hard, chemically inert and has a high melting point because of the strength of the bonds between the atoms. These are prized qualities in various fields, including the glass, metallurgical and construction industries.
The South African silica market comprises two key market segments, namely glass and metallurgical processes. Total annual consumption is approximately 2.7 million tonnes. The metallurgical market remains the primary consumer of product, taking approximately 47% of supply.
There has been steady growth in the glass industry over the past two years, which now consumes 27% of supply. The balance of supply is absorbed by the construction industry, which currently uses 21% of the silica produced and is potentially a high growth sector for SamQuarz. The filter media, silica milling and recreational sectors absorb the balance of supply.
SamQuarz remains the largest producer of silica in South Africa, responsible for meeting 35% of South African consumption. It continues to supply to key blue-chip companies such as Evraz’s Highveld Steel and Vanadium Corporation and PFG. Demand remains strong in the glass manufacturing industry with Consol Glass (one of its key customers) having commissioned a fourth furnace at its Clayville factory during April 2008. It is expected that the mine will continue to play a vital role in this sector.
© 2009 Petmin Limited