Export Supply Chain Bottlenecks Could Crimp Mozambique's Coal Boom

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Vale S.A.'s (NYSE:VALE) (Rio de Janeiro, Brazil) plans for a $6 billion expansion program at its Moatize project in Mozambique is part of that country's growing coal boom. Vale is planning to lift output from an initial 11 million tons annually to 22 million tons, starting in the second half of 2014.Coking coal for steelmakers will comprise 70% of output from the expansion, and the balance will be thermal coal. The first exports of coking coal will begin in December and will increase to commercial scale by March-April 2012.

But with this and other projects that are set to ramp up production and open new coal mines, the country's transport infrastructure and export terminal capacity needs urgent attention.

Studies are now taking place on transport options, and the government plans to expand Quelimane port in the Zambezia province to a coal-handling capacity of 20 million tons a year, then possibly to 100 million tons a year.

By 2020, up to 120 million tons of coal a year will be produced in Mozambique, most of which will be exported, and there are plans to build a 500-kilometer rail line from the rich inland Tete coal fields to Quelimane on the Indian Ocean coast. The upgrade of the Sena line from Moatize to Beira is behind schedule.

Other lines to Beira, Maputo and Nakala in the north are on the table, and the private sector has shown interest in funding the rail projects and port facility expansion programs.

Vale will be investing the greater portion of its $6 billion Moatize investment on the Moatize-Nakala line, which it would control for the transport of its own product. Beira's coal export facility is under the control of Vale and Rio Tinto plc (NYSE:RIO) (London, England). Grindrod controls the Matola terminal at the port of Maputo and has expanded capacity to 6 million tons. It is looking at investing a further $800 million to take capacity up to 20 million tons.

These rail and harbor expansion projects will primarily serve the best interests of the investing and controlling companies, which could create a barrier to new companies wishing to enter the sector. The government envisages having a coal export supply chain open for maximum opportunities, but will have to work on the trade-off between private sector investment in development and the ultimate control of the facilities.

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