AfrElec: Europe eyes South Africa as coal supplier following Russia sanctions

European buyers of coal are beginning to turn to other global suppliers, looking as far as South Africa, in the wake of Russia’s invasion of Ukraine. Traditionally South Africa ships over 86% of its coal to Asian markets. Last year, of the 59mn tonnes of coal dispatched from the Richards Bay Coal Terminal, only 4% went to Europe.

The trade in energy commodities has started to see disruptions since the introduction of the SWIFT restrictions against Russian banks. While the energy sector was not specifically targeted, the sanctions have affected exporting capabilities from Russia. According to OilPrice, the threat of further sanctions has made Russian coal unsellable with many European buyers.

According to Bevan Jones, CEO at African Source Markets, coal flows from South Africa, the US and Colombia to Europe have increased over the past few weeks as European utilities have ramped up volumes. Vessel-tracking data show that several coal cargo carriers are heading west around the Cape of Good Hope from the Richards Bay coal terminal.

Many companies and countries have made their own decisions to stop trading with Russian suppliers amid concerns over transport disruptions, reliability of supply chains and possible escalation of sanctions. As a result, energy commodity prices are surging in Europe and Asia. Last week, coal prices spiked to record highs as the Russia-Ukraine conflict escalated.

“European thermal coal prices have surged to record highs with futures prices above $400 per tonne until Q4,” Wood Mackenzie principal analyst Rory Simington said. “Some buyers in Japan and Europe have already indicated they are looking to replace Russian supply, and non-Russian thermal coal in Europe is attracting a significant premium over Russian material.”