Shumba Energy, the forthcoming energy developer is upbeat that the international coal market will bounce back, led by biggest consumers such as China and East Asia. The company is currently at various stages of developing its coal assets in Botswana, both for the domestic and export markets. At the beginning of the year, prices were going under $55 per tonne briefly, but the picture has since changed.
This is with the benchmark Australian export price coming within touching distance of USD 70 per tonne and they are now making reduced losses around +USD 15 to USD 20 per tonne after further cost reductions, cancelling expansion plans and capital projects. Writing in the latest company annual report, Shumba Chairman, Alan Clegg, Shumba indicated the market is still heading for a significant deficit within 3 to 5 years which will force prices upward to potentially unseen levels and highs.
On a related matter concerning the cola market, heavy rainfalls have hit Indonesian supplies also and with the Chinese Government shutting down mines at home on safety and environmental concerns these are all boosters for the price with some analysts predicting prices back at levels of USD 90 per tonne by 2018. As for Botswana’s Shumba, sentiments remain the same with those of the analysts and still believe the markets are correcting. Market analysis places South East Asia for significant growth with strong correction by end of 2017 and into 2018 based on the known energy demand which on latest 2016 estimates require an additional 40Mt to 45Mt of coal supply per annum.
“As I highlighted last year the Southern African power pool continues to hold a major net deficit of over 30GWe that is still growing as older power plants are closed down and/or need replacement. This urgency to cover this deficit and make industry in the SADC region competitive and sustainable has been highlighted in the reporting period with much inter-governmental activity on cross border power supply arrangements and agreements which, are all in Shumba’s favour.” He further indicates that, some 3750Mw has been approved and called for by the South African government under these arrangements and recent parliamentary presentations by Botswana’s Minister of Energy again highlighted the urgency for these quotas to be filled by independent power producers.
Shumba continues to focus on tactical execution for early cash flow. “In line with this, low cost coal production for local supply to the spot market and established energy producers directly through offtake agreements, like Botswana Power Company at Morupule, is a point of focus. And further our IPP projects are also in the short term another priority, particularly at Mabesekwa.” Potentially in the future Shumba may yet export onto world spot markets into the sweet spot of the upturn medium term, giving significantly higher than normal returns.