Exxaro's operating context is determined by the external drivers that impact our ability to create value. We analyse global and local macro-economic factors and commodity market trends to inform our material matters, influence our strategic direction and performance, and highlight opportunities.
We must balance South Africa's socio-economic development, which relies on coal-generated power, with the need to transition to a low-carbon economy. While the shifts driven by the forces listed below pose future challenges and increase external risks for those who fail to adapt, they also present significant opportunities for those who can evolve.
Climate change
Climate change increases competition for scarce resources like water and biodiversity, and rising temperatures elevate health and safety risks at our operations.
Energy transition
Disruptive technologies in the energy sector pose a medium to long-term risk of displacing our coal business.
Low-carbon transition
The transition to a low-carbon economy carries significant socio-economic implications for our business and the communities in which we operate.
Stewardship
We see ourselves as stewards of coal assets, responsibly maximising their value. Our responsibility extends to using these assets to build a sustainable business for investors, employees and communities and contribute to a sustainable future for the planet.
Read more about these forces in our outlook
Building on these overarching forces, we identified areas where these drivers shape our operational context. New market growth will be driven by energy generation, storage and infrastructure demand. The global and regional pace of the energy transition dictates the timeline for diversification. Our response addresses the macro-economic environment and market dynamics, both integral to adapting our strategy and seizing growth opportunities.
| Our macro-economic context | |
| Challenges in South Africa’s logistics and infrastructure networks for bulk commodities | 1 |
| Challenging but improving global and domestic economic conditions | 2 |
| Evolving geopolitical and geo-economic tensions leading to further fragmentation | 3 |
| Global uncertainties altering the pace of the energy transition | 4 |
| Moderating inflation rates enabling central banks worldwide to lower interest rates | 5 |
| Currency markets adjusting to the trajectory for inflation, growth and policy rates | 6 |
| Increased relevance of ESG | 7 |
| Digital and innovation | 8 |
| Our markets | |
| Commodity markets | 9 |
| Coal markets | 9.1 |
| Iron ore market | 9.2 |
| Energy market | 9.3 |
| Energy transition minerals and metals landscape | 9.4 |
Rail operations faced ongoing disruptions, including cable theft, vandalism, unavailability of locomotives and wagons, and infrastructure degradation. Furthermore, three derailments affected Transnet Freight Rail's (TFR) volume throughput in the year's first half. Despite these challenges and the volatility of rail execution in 2024, TFR's performance to RBCT increased to 51.91Mt (2023: 47.92Mt), with an improved performance in the second half of the year.
Exxaro's export evacuation via rail increased to 5.2Mt (2023: 4.6Mt) despite continued disruptions. Road evacuation increased to 1.8Mt (2023: 479 000t) due to the use of alternative routes and ports to fulfil market demand. We are reviewing all available routes to market to meet demand and unlock stakeholder value.
We regularly engage with TFR to improve operational performance, and we review and develop alternative routes to market to mitigate the impact of rail disruptions on our export evacuation.
After a slow start to 2024, global economic growth improved due to stronger than expected performance from the US, eurozone, UK, Russia, Brazil and India. Economic activity was impacted by gradually moderating inflation rates, widespread monetary policy easing resulting in lowered interest rates, geopolitical developments, the outcome of the US presidential election and additional stimulus to support China's economy. Following a 2.9% increase in 2023, global real gross domestic product (GDP) expanded at a slower pace of 2.7% in 2024.
Global GDP: 2.7% (2023: 2.9%)| Real GDP growth rate (%) | ||||
|
2025 forecast |
2024 |
2023 |
||
| Global | 2.6 | 2.7 | 2.9 | |
|---|---|---|---|---|
| US | 2.3 | 2.8 | 2.9 | |
| Eurozone | 0.9 | 0.8 | 0.5 | |
| China | 4.2 | 5.0 | 5.4 | |
| India | 6.4 | 6.4 | 8.2 | |
| South Africa | 1.7 | 0.6 | 0.7 |
Source: S&P Global, Exxaro analysis February 2025.
Economic activity in South Africa was muted at the start of the year, with GDP flat at 0.0% in the first quarter, expanding by 0.3% in the second quarter, and contracting by 0.1% in the third quarter, followed by a 0.6% expansion in the last quarter. The formation of the Government of National Unity (GNU) led to significantly improved local consumer and global investor sentiment, fostering cautious optimism for higher economic growth.
Private investment in renewable energy, Eskom's increased maintenance and transmission system developments, and accelerated implementation of structural reforms in ports and rail reduced energy and logistical constraints. Additionally, the new two-pot retirement system was anticipated to reduce household debt commitments and boost consumer spending from late 2024 into 2025. Collectively, these factors contributed to South Africa's real GDP growth of 0.6% for 2024.
We prioritised cost management through various initiatives in the business value chain during 2024.
Intensifying geopolitical tensions are fragmenting the global economy. This affects Exxaro through shifting supply-demand dynamics, global inflation and interest rate policies, GDP and foreign direct investment, domestic and foreign policy changes, sanctions and trade policies, anti-dumping duties and countervailing measures, customs restrictions and delays, changes in global financial markets, infrastructure challenges and energy transition considerations.
Heightened geopolitical tensions in the Middle East affected energy markets, impacting thermal coal, oil, gas and liquefied natural gas. The Russia-Ukraine conflict continued to impact supply-demand and pricing dynamics for key Exxaro commodities and presented opportunities in the European and Japanese thermal coal markets. The subsequent sanctions, including the European Union's ban on coal imports from Russia, shifted global thermal coal trade flows as Russia was forced to pivot into alternative markets, impacting its total seaborne levels and pricing.
Global elections further shaped the landscape. The Republican Party's victory in the November 2024 US presidential election saw a withdrawal from the Paris Agreement post-year end and could lead to the realisation of policies favouring protectionism through significant trade tariffs and withdrawal from the UN Framework Convention on Climate Change. These developments could potentially weaken the US dollar and would increase the risk of further global inflation, following a restrictive monetary policy stance and slower GDP growth, while likely benefiting US fossil fuel companies. Additionally, a reduction in US military aid to Ukraine could force Ukraine into a peace settlement that lifts sanctions against Russia, which would affect global seaborne thermal coal markets.
The ever-changing global geopolitical landscape presents significant challenges. While our ability to influence global events is limited - beyond engaging with government - our early value and market to resource optimisation strategies will enable us to achieve long-term sustainability.
Global economic, political and technological uncertainties are adding complexity to operating environments and the energy transition's speed and trajectory. In 2024, intensified geopolitical tensions tested global energy security. While rising energy prices and fossil fuel subsidies have hindered energy equity over the past three years, energy sustainability has progressed through improved energy efficiency and an increase in clean energy.
Although the energy transition has made progress, it remains uneven. Adoption of wind and solar energy has increased, but achieving net zero by 2050 requires intensified efforts in energy efficiency, system electrification and the adoption of low-carbon energy sources and fuels.
In South Africa, the transition to a low-carbon economy aims to drive economic growth, create jobs and increase energy security while addressing climate change. However, the transition is shaped by our local context, where socio-economic inequalities and energy poverty play significant roles in shaping the transition process. Against this backdrop, South Africa remains behind in transitioning the energy value chain of generation, transmission and storage.
We are committed to progressing our low-carbon transition journey by reducing greenhouse gas (GHG) emissions and exploring opportunities in energy transition minerals.
Our carbon neutrality target for 2050 is on track as part of our broader ESG strategy, reflecting our belief that sustainable development is essential for our business and the future of our planet.
Global inflation continued its gradual decline in 2024. In the US, the Federal Reserve delayed its first policy rate reduction until mid-September 2024 due to a prolonged elevated headline consumer price index. This marked the end of the most aggressive rate hiking cycle in decades and followed earlier cuts by the European Central Bank, Bank of Canada and Bank of England.
In South Africa, headline inflation averaged 4.4%, down from 6% in 2023, driven by a moderation in brent crude oil prices, the marked strengthening of the rand and the overall broad-based disinflation in fuel and goods prices. The cumulative repurchase rate increased by 450 basis points collectively over 2022 and 2023. As of September 2024, interest rates started to decline gradually (by 25 basis points), followed by another 25 basis points easing in November 2024. This environment of moderating inflationary and restrictive interest rates impacted Exxaro through cost escalations and borrowing cost increases. While headline consumer and producer inflation rates declined, the benefits of lower inflation have yet to fully offset cost escalations.
In line with our cost management goals, we implemented inflation-linked cost escalations where possible. Additionally, our cash position enables us to fund our Sustainable Growth and Impact strategy.
The US dollar remained resilient through most of 2024, supported by unexpected US economic strength, recession concerns, relatively tight Federal Reserve monetary policy, elevated interest rate differentials, expansive fiscal policy, geopolitical risks, and related financial market flows. The US dollar's status as the dominant global reserve currency and safe haven for assets benefited it during periods of uncertainty and financial market volatility.
However, the latter part of the year saw a weakness in the US dollar due to a pronounced downward shift in interest rate expectations. Improving inflation data and a softening labour market permitted an aggressive start to US Federal Reserve rate cuts, with a 50 basis point decline in policy rates in September 2024.
The rand strengthened against the US dollar in early October, reaching R17.11 per US dollar, down from R19.25 at the end of April 2024. However, US dollar resilience left the rand weaker at R18.71 by the end of December 2024.
Currency volatility and a weaker rand impacted Exxaro positively, supporting favourable coal export earnings.
To maintain financial viability amid volatile coal and foreign exchange markets, we placed coal in domestic market priced in rand.
ESG is fundamental to our Sustainable Growth and Impact strategy and a priority for stakeholders. It is a business and social imperative, in line with global drivers such as growing stakeholder expectations, environmental considerations and social and sustainability factors. Governance and reporting expectations for ESG have intensified, with greater emphasis on due diligence, increasing regulatory requirements, converging reporting standards, and reporting transparency and comparability. Additionally, the ESG landscape is increasingly leveraging digitalisation and artificial intelligence (AI) to reveal insights.
Social impact, an outcome of our Sustainable Growth and Impact strategy, addresses material social and compliance matters, fostering a harmonious co-existence between Exxaro and local communities and creating a thriving environment.
The increasing relevance of ESG requires its integration into corporate strategies, decision making and stakeholder reporting. While this calls for a coordinated effort, it will enhance alignment, impact and efficiencies.
We prioritise safety protocols, training and technology adoption. We developed our decarbonisation roadmap to achieve carbon neutrality by 2050, addressing capital allocation aspects for its implementation. Investments are focused on expanding a diversified minerals and energy portfolio while ensuring low-carbon transition minerals are sourced responsibly, with traceability systems in place and adherence to international standards. We apply circular economy principles and invest in resource efficiency, operational and community adaptation measures, and nature-based carbon offset solutions. To enhance transparency, we produce a standalone annual ESG report aligned with global standards. We are developing an ESG policy to integrate and embed ESG across the group, ensuring compliance and investor confidence. Additionally, we form strategic partnerships to address South Africa's and Exxaro's scope 3 emissions collaboratively with stakeholders.
Refer to creating stakeholder value, natural capital and social and relationship capital for more information.
Our iNNOVAXXION strategy equips us to leverage skills, capabilities and digital infrastructure to add value to the business and shareholders. The strategy is underpinned by the visualisation of our value chain, enabling data-driven decision making and driving end-to-end integration and optimisation to remain competitive and achieve sustainable growth and impact.
We are exploring the use of generative AI to drive cost efficiencies, enhance productivity and strengthen safety measures. We believe generative AI is a catalyst for innovation and value creation. By leveraging generative AI through our newly launched AI solution, XXoro, we will enhance our understanding of key policy information and improve safety management.
In 2024, we made significant progress in implementing generative AI in support of our Sustainable Growth and Impact strategy. We launched XXoro, our generative AI solution - the first project in our generative AI roadmap. Over a nine-month period we successfully developed use cases, prototyped and rolled out the solution. The launch of XXoro demonstrates the alignment of rapid prototyping, scaling and continuous improvement with our strategic goals, positioning us as a forward-thinking business.
Refer to intellectual capital for more information.
In 2024, global commodity markets were primarily driven by financial market dynamics, including inflation, interest rates and economic growth expectations for China, the US, and globally. As a result, commodity markets sometimes outpaced underlying fundamental or macro-driven demand improvements, making them vulnerable to significant corrections. Initial Chinese stimulus announcements failed to meaningfully support commodity demand, while ongoing geopolitical tensions, China's weak property market, and gas supply risks further constrained sustained demand during the year.
Overall, Exxaro's commodity markets delivered softer performances in 2024, with lower market annual average reference prices for thermal coal and iron ore. Performance trends varied between the first and second halves of the year. Thermal coal started the year under pressure and strengthened, whereas iron ore started strong and lost momentum. Specific market drivers are discussed in the respective commodity sections that follow.
| Commodity prices (US$/t) | 2024 | 2023 |
| Thermal coal (API4) | 105.31 | 121.00 |
|---|---|---|
| Thermal coal (API3) | 89.19 | 100.72 |
| Iron ore fines (62% Fe) | 109.46 | 119.54 |
| Lump premium | 8.89 | 9.64 |
Source: Various commodity market intelligence reports, January to December 2024.
Through our portfolio optimisation process, we actively evaluate and participate in investment opportunities to unlock value in support of our Sustainable Growth and Impact strategy.
The seaborne thermal coal market experienced a continued bearish trend in the first quarter of 2024, largely due to sufficient supply into key markets such as Europe, Japan, Korea and Taiwan, together with favourable gas economic dynamics. Geopolitics - including US sanctions on Siberian Coal Energy Company (SUEK), the Russia-Ukraine conflict, attacks on Ukraine power stations and the March 2024 TFR derailment – supported the price recovery recorded in the second quarter of 2024.
Higher seaborne thermal coal prices led to muted demand support in India. Demand was further reduced by high stockpiles of South African thermal coal, the monsoon season and low domestic thermal coal prices due to improved domestic production. In addition, low steel prices caused by an oversupply of cheaper steel from China eroded demand from the Indian sponge iron sector.
In Europe, a mild winter, the availability of energy mix options (renewables, natural gas and nuclear energy) and the phasing out of coal as an energy source resulted in lower demand for South African products. This was exacerbated by competition from alternative suppliers such as Colombia.
Demand for thermal coal from Japan and Korea remained steady, with Korea being the more opportunistic buyer during favourable pricing periods. This was especially evident in the third quarter of 2024. Japan's rich energy mix of gas, renewables, nuclear and coal, together with the restart of several nuclear plants, halted significant thermal coal demand improvement.
In terms of supply, 2024 was characterised by ample seaborne supply, with Australia and Indonesia (the largest global exporters) recording strong production mainly due to dry weather conditions. No major trade flow shifts were evident, as Australia continued to supply to China and the ban of Russian coal in Europe and Japan (and partially in South Korea) remained in force.
We mitigate volatility in coal market pricing and ensure our resilience through our early value strategy, market to resource optimisation and market diversification. We also focus on building market agility and adapting to any changing global coal flows.
Subdued Chinese economic growth, a persistent downturn in the Chinese property market, robust global iron ore supply and increasing inventories at Chinese ports pressured the iron ore market and pricing in 2024. A set of initial Chinese policy announcements focused on the stabilisation of China's economy through consumer wellbeing and did not include support for iron ore and steel demand. Subsequently, tax incentives for China's property market and some restocking initiatives temporarily lifted the iron ore market sentiment.
Continuous rising iron ore supply and exports remain the key limiting factors for seaborne iron ore prices, affecting the performance of Exxaro's SIOC investment. Major miners' supply is increasing, and while overall Chinese demand remains relatively flat, steel and iron ore demand from non-property sectors increased towards the end of 2024. Early signs of the Chinese government's interventions yielding results emerged, with manufacturing and services sectors moving into expansionary territory, assisted by improved steel mill margins. Furthermore, steel exports saw US buyers stockpiling materials ahead of anticipated import tariff increases.
Exxaro, through our SIOC investment, has significant exposure to higher-value iron ore lump product. As steel production shifts to lower-carbon processes, demand for higher quality iron ore is likely to grow.
Countries are working to meet growing energy demands and transition to cleaner sources, with low-carbon energy investments reaching a record US$2.1 trillion in 2024. This shift spans renewable sectors like solar, wind and hydropower, and includes increased interest in natural gas infrastructure to support a balanced energy mix. In South Africa, the Integrated Resource Plan (IRP) 2023 outlines plans for 7 220MW of new gas-to-power capacity by 2030, with regulatory easing updates to support growth in the energy sector.
Developments in the energy market present expanded opportunities for Exxaro to position itself within the low-carbon energy landscape, supporting our transition objectives and broader energy resilience and sustainability objectives.
Exxaro is exploring a range of energy investments, positioning ourselves as a significant contributor to South Africa's energy transition. This diversified approach aligns with national policy and global investment shifts, enabling Exxaro to enhance energy security while advancing sustainable development.
The global shift towards a low-carbon economy is driving unprecedented demand for energy transition minerals such as copper and manganese, which are crucial across the renewable energy value chain. Despite surging demand, long-term structural deficits still exist in many future-facing commodities. Copper, known for its conductivity, is in high demand as renewable energy installations and electric infrastructure expand globally. Manganese, with 80% to 90% used in steel making, is used as an alloying agent by steel makers pursuing a “green” steel product, while also being in high demand for energy storage applications. As a leading producer, South Africa has a unique opportunity to capitalise on this resource. Exxaro is in a good position to leverage South Africa's leadership in manganese production and tap into the copper market as demand continues to rise.
Diversification and growth plans to solely own copper assets have drastically changed, influenced by partnership models, jurisdictional changes and an expanding investor universe. This enabled Exxaro to consider multiple market entry points, including through a credible copper mining producer and operator, partnering with a copper producer with an attractive asset portfolio and project pipeline, JVs, and project development and greenfield exploration. However, the energy transition minerals market faces challenges, including fluctuating global demand and evolving policies in regions that aim to retain mineral value through regional processing, refining and manufacturing incentives.
We are considering various options to execute on opportunities in sought-after assets and commodities.
IR