Multi-product coal distribution and price discovery for the domestic market via mathematical optimisation

This paper investigates the implications for coal supply security for the domestic South African market when faced with weaker export demand. A model is proposed of domestic coal trade via a trading hub which links coal production to consumer markets. An application of the theory for equilibrium price discovery at the mine-trader and trader-consumer interfaces is also described. It is found that the profit-maximising trader seeks to sell more volumes to domestic consumers of higher-grade coal to compensate for earnings lost due to lower export volumes. This results in lower prices on higher-grade product. Supply to domestic consumers of lower-grade coal appears to be unaffected by the weaker export market, with the price on lower-grade coal constant.