South Africa

Premium grade iron piles up due to Transnet constraints

Anglo American’s South African iron ore unit said rail and port bottlenecks mean stockpiles of the steelmaking ingredient are continuing to build at its mines.

South Africa’s state-owned rail operator Transnet is struggling to ship coal and iron ore as it is hit by maintenance backlogs, vandalism and a lack of capacity.

Kumba Iron Ore said its stocks surged 28% to 7.8 million tons by the end of December from a year earlier. That cost the company about R10 billion in lost sales, mainly in the fourth quarter.

Only 800,000 tons of Kumba’s high-grade iron ore is at Saldanha port, with the rest stuck at its mines, including the giant Sishen open-pit operation in South Africa’s Northern Cape province. Stockpiles are normally 4.5 million tons to 5 million tons. 

“We clearly are sitting at levels that are higher than what we’ve planned for,” CEO Mpumi Zikalala said on a conference call. “And we typically wouldn’t want to have high product stockpiles particularly sitting at the mines. We would want to have a good spread between the mines and the port.”

Kumba’s profit slumped 55% to R14.97 billion last year, as prices declined and iron ore volumes railed to Saldanha fell by 9% to 35.9 million tons. The company’s shares fell as much as 5% in Johannesburg, before trading down 2.9% at 13:01.

“So it is quite significant and clearly we rely on the logistics line because there’s no way we can sell to our customers,” the CEO said.

Demand remains strong in Europe and China, with Kumba’s high-grade iron ore selling for an average of 13% above the benchmark price last year. 

The miner hauls iron ore on the 861km rail line that runs from its Sishen and Kolomela mines to Saldanha on South Africa’s west coast.

Capacity is often curbed by challenges ranging from extreme weather and locust swarms — which can result in derailments — to Transnet’s inability to maintain the line, Zikalala said.

The Anglo unit will reset its production outlook over the next three years to reflect Transnet’s expected performance. Kumba plans to maintain output this year at 35 million to 37 million tons as it clears stockpiles.

Production could increase by 5% to 6% each year in 2024 and 2025 as rail performance improves.