South Africa’s new multi-party government is pushing forward with reforms to improve the country’s iron-ore logistics. Kumba Iron Ore has praised this commitment, emphasizing its potential to enhance logistics performance through public-private partnerships.
Under the leadership of the Presidency and the National Treasury, Operation Vulindlela is driving collaboration between government and business. These reforms aim to support private-sector participation and investment, enhancing the logistics network.
Kumba CEO Mpumi Zikalala highlighted the potential of the current public-private partnership model during a recent presentation of half-year results. She noted the government’s increased focus on policy implementation and delivery.
“The good thing is that the independent technical assessment is being finalized to come out in the third quarter,” Zikalala said during a Q&A session.
The transparency of the new Transnet leadership offers a significant opportunity for public-private logistics improvement. Zikalala expressed optimism about statements from the new Minister of Transport, Barbara Creecy, and the continuity of efforts by the National Logistics Crisis Committee.
Kumba has faced challenges due to a decline in logistics performance. To mitigate this, the company has optimized its operating model and collaborated with Transnet, the Ore Users Forum, and the National Logistics Crisis Committee.
“We’ve proactively sought ways to mitigate the impact by optimizing our operating model,” Zikalala said. Despite these efforts, Rail’s poor performance in the first half impacted Kumba’s sales, which fell by 9% in the first quarter compared to the previous quarter.
In April, Kumba and its Ore Users Forum partners assisted Transnet with repairs on a stacker reclaimer at the Port of Saldanha. This led to a five-day proactive mini-shutdown of the port and rail. The repairs and shutdown resulted in a 12% increase in sales in the second quarter.
However, rail performance did not see the same improvement post-mini shutdown. Despite this, the partnership’s positive impact on logistics performance is clear. In the second half, Kumba aims to support Transnet as it prepares for its annual maintenance shutdown in the fourth quarter.
The independent technical assessment expected in the third quarter should expedite the delivery of critical projects. This involves collaboration between the Ore Users Forum and Transnet.
Kumba Iron Ore CFO Bothwell Mazarura discussed cost reduction efforts by the Anglo American Group company. Since early 2022, iron-ore prices have averaged around $120 per ton. In the first half of this year, the benchmark price averaged $118 per ton, with strong steel exports from China offsetting weak domestic demand due to a sluggish property market.
Year-on-year, crude steel production decreased by 1%. Narrow mill margins in the first quarter forced mills to lower capacity utilization. “Since then, we’ve seen an improvement in margins, resulting in increased steel output,” Mazarura reported.
Iron ore supply increased from both traditional and non-traditional sources, aided by fewer weather disruptions in the first half. Notably, Ukraine’s exports more than doubled with the recovery of the Black Sea shipping route.
“From below five cents per ton in April, the lump premium recovered to about 20 cents, and is currently supported by relatively low stock levels at Chinese ports,” Mazarura outlined.
Discussing product quality and customer strategy, Mazarura said, “Our iron-ore qualities are second to none and we pursue a diversified sales strategy that maximizes the value of our products.” However, in the first half, the share of China in total sales rose to 55%, reflecting a drop in demand from traditional markets like Europe, Japan, and South Korea.
“As economic conditions improve, we expect this trend to shift towards our long-term target of 45% to 55% of our volume going to non-China markets. This year, the premium has been reduced to near breakeven levels due to less favorable timing effects.”
“While our realized price is now similar to Australian peers like Rio Tinto and BHP, it’s important to note that they benefit from being much closer to China, not just from lower freight costs, but also because negative timing effects would have been far less severe due to the much shorter sailing time for them,” Mazarura pointed out.
Source: Mining Weekly
