Durban floods exacerbate tight andalusite supply

Published: Tuesday, 17 May 2022

Continuing challenges to production and transportation of andalusite in South Africa are exacerbating an already tight market, reports Janie Davies.

Andalusite deliveries have been significantly delayed by severe floods in South Africa in April that damaged infrastructure and created a logistical backlog that exacerbated an already tight market.

Fastmarkets reported in November 2021 that demand in 2022 was expected to outstrip supply, and that tight supply and soaring shipping costs had pushed up andalusite prices by an average of 18% over three months.

Fastmarkets assessed its quarterly price for andalusite, min 57% Al2O3, cif Europe, at €420-520 ($438-542) per tonne on November 28, 2021, up from €350-440 per tonne in August of that year. The price subsequently held steady in February.

Commodity exporters in South Africa, the world’s single largest producer of andalusite, were hit by severe disruptions in April after the heaviest rains in 60 years damaged road and rail infrastructure in the province of KwaZulu-Natal, as well as Durban port.

In the final days of April, tens of thousands of containers were stuck in Durban, a major export route for various commodities from the African continent. The flooding also caused a significant number of fatalities and a spate of force majeure declarations in April by producers of materials including andalusite, cobalt and copper.

Producers have been left struggling to ship material and there was very little spot material on offer, market sources told Fastmarkets in late April and early May. "Demand is substantially higher than actual active capacity. There is practically no andalusite on the market for spot buyers," one purchasing source told Fastmarkets.

Extensive damage to rail infrastructure as a result of the flooding meant cargoes needed to be retrieved from the rail system. "All cargo on the rails, in the terminals and on the tracks, is unable to reach its destination. It has had to be taken out of the system," an andalusite market source said.

"This is affecting everyone. Due to high demand, customers are really struggling to get material and producers are struggling to send enough material. Shipments had a very long lead time anyway, so this adds to it," the source said.

The floods built on an already significant strain on commodity producers in South Africa, who have long been beleaguered by escalating logistical and power constraints and related costs.

In 2021, andalusite market sources reported frequent power shortages, labor shortages and interruptions at production operations, including a force majeure declaration at a mine due to community unrest.

Electricity load shedding

South Africa has suffered regular load shedding – controlled blackouts designed to ease pressure on the country’s power grid – so far in 2022, due to a lack of generating capacity.

The country’s state power utility, Eskom, announced on May 3 that it was implementing Stage 2 load shedding the same evening and that this would continue until the morning of May 9. This followed the implementation of the same protocol, as well as the more severe Stage 3 and Stage 4 load shedding protocols, at intervals over recent months.

"We are hard hit by power issues including load shedding and the recent floods in Durban. Load shedding is not over in South Africa by any means, and it has hit producers really hard. It’s very challenging for producers in South Africa, not just andalusite," an andalusite supplier source told Fastmarkets.

"We are oversold by a country mile. We have not been able to export half of what we would have exported in April [due to the floods]. There is always a major issue to deal with, and supply is not able to recover from one event before there is another," the source added.

The stability of andalusite prices since November meant that producers have not been able to pass on the extent of their rising production costs, largely due to freight and the cost of managing more recent disruptions. "We are passing on as much freight cost as we can. We can’t recover all these [rising] costs at this point; we must wait until the next round of negotiations. We have to suck it up; it’s better than not producing," the supplier source said.

Another source confirmed stable contract prices, but said that some costs were being passed on through surcharges, which he said were becoming confusing due to rising costs for different factors.

"So far, I can only tell you that the prices in general do not change. As everyone in the world is doing right now, you pass on the particular cost of freight. Surcharges are released by the shipping lines, [and] suppliers add container surcharges per shipment on top of the andalusite price. That’s what most people do," a third market source said.

"The price structure is really confusing; due to different surcharges based on factors including destination and equipment, you can lose track of what you need to cover to cover your costs. Normally, [changes in costs] would be absorbed, but [these] changes are too big and nobody has high enough margins to cover thm," the source said.

The sharp upward change in the andalusite price in November 2021 represented a 27% increase year-on-year, up from $320-420 per tonne in November 2020.