JOURNAL PAPER

 

Pricing of South African thermal coal exports

 

 

M. Steyn^I; R.C.A. Minnitt^II

^ICoal Exports, Exxaro Coal
^IISchool of Mining Engineering, Univeristy of the Witwatersrand, South Africa

 

 

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SYNOPSIS

Until 2000, pricing involved profit taking and cost covering combined with limited global published information. Market information was mostly subjective in nature and large resource companies benefited exclusively from aggregated company information and data. The market constituted producers and consumers only. The nineties saw massive cost cutting drives and re-engineering initiatives and this underwrote the structural changes evident in the late 1990s' economy. This supported South African producers on the international FOB cash cost curve, and ensured profitable coal mining operations. As the debate on relative scarcity of fossil fuels ensued, producers and buyers looked to the developing terminal coal market for direction. The much needed direction was provided when the API coal indices were developed and derivative trading was embraced to include financial institutions, trading houses and hedge funds. The liquidity of coal trades increased rapidly and vastly and market information became obtainable on a daily basis. Interpretation of current and future coal prices became available to all market players and contributed to the sophistication of the market that is now able to participate in risk management of prices, capital expenditure and brownfield developments.

Keywords: Thermal coal markets, supply-demand balance, aggregate supply, price strategy, transparency, volatility, market share, stockpiles, risk management, derivative trading, marketing indices

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