north carolina coal institute 2014 spring seminar2014 spring...

North Carolina Coal Institute2014 Spring Seminar2014 Spring Seminar

April 3, 2014p ,

Joseph A. CzulLogan & Kanawha Coal Co LLCLogan & Kanawha Coal Co., LLC

1

L&K Overview

Th M t V l til C dit i th L t D d C ki C l The Most Volatile Commodity in the Last Decade - Coking Coal

Coking Coal Market – How We Got Hereg

The Near Future FORWARD-LOOKING STATEMENTS: Certain statements in this presentation and other written or oral statements made by or on

behalf of us are "forward-looking statements" within the meaning of the federal securities laws. Statements regarding future events and developments and our future performance, as well as management's expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. These forward-looking statements are subject to a number of risks and uncertainties that could cause our actual results performance or achievements to be materially different from any future resultsrisks and uncertainties that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements; These risks and uncertainties are detailed in our reports filed with the Securities and Exchange Commission (SEC). Management believes that these forward-looking statements are reasonable; however, you should not place undue reliance on such statements. These statements are based on current expectations and speak only as of the date of such statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise.whether as a result of future events, new information or otherwise.

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Logan & Kanawha Coal Marketing

Wholly owned by James River Coal Co.

Logan & Kanawha – Coal Marketing

Wholly owned by James River Coal Co.

Oldest sustained coal sales company in the industry

Strong relationships in both the domestic and international Strong relationships in both the domestic and international marketplace

Main areas of operation Main areas of operation• Sells all of James River’s Met Coal and Export Coal• Sells 3rd party coalSells 3 party coal

2013 statistics• ~20 different customers20 different customers• Six countries• ~20 Suppliers

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pp

Sales ActivitySales Activity

Logan & Kanawha GlobalLogan & Kanawha Global Sales - 2013

≈30% ≈30%

≈30%

≈10%

4

≈30%

Thought for the day:

Read more history and fewer forecasts

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Met (Coking) Coal

The most volatile commodity of the last decade.

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Coking Coal vs CommoditiesCoking Coal vs CommoditiesPrice History

250%

300% Crude Oil

150%

200%

50%

100% Crude Oil

0%

Jan‐08

un‐08

Nov‐08

Apr‐09

Sep‐09

Feb‐10

Jul‐1

0

Dec‐10

May‐11

Oct‐11

Mar‐12

Aug‐12

Jan‐13

un‐13

Nov‐13

J J N A S F D M O M A J J N

7Source: Energy Information Administration


250%

300% Natural Gas

150%

200%

50%

100% Natural Gas

0%

Jan‐08

un‐08

Nov‐08

Apr‐09

Sep‐09

Feb‐10

Jul‐1

0

Dec‐10

May‐11

Oct‐11

Mar‐12

Aug‐12

Jan‐13

un‐13

Nov‐13


8Sources: WTRG Economics, Energy Information Administration


250%

300% NYMEX

150%

200%

50%

100% NYMEX

0%

Jan‐08

un‐08

Nov‐08

Apr‐09

Sep‐09

Feb‐10

Jul‐1

0

Dec‐10

May‐11

Oct‐11

Mar‐12

Aug‐12

Jan‐13

un‐13

Nov‐13


9Sources: WTRG Economics, Federal Reserve Bank, Energy Information Administration


250%

300% Corn

150%

200%

50%

100% Corn

0%

Jan‐08

un‐08

Nov‐08

Apr‐09

Sep‐09

Feb‐10

Jul‐1

0

Dec‐10

May‐11

Oct‐11

Mar‐12

Aug‐12

Jan‐13

un‐13

Nov‐13


10Sources: Univ. Wisconsin


250%

300% Coking Coal FOBT

150%

200%

50%

100% Coking Coal FOBT

0%

Jan‐08

Jun‐08

Nov‐08

Apr‐09

Sep‐09

Feb‐10

Jul‐1

0Dec‐10

May‐11

Oct‐11

Mar‐12

Aug

‐12

Jan‐13

Jun‐13

Nov‐13

Apr‐14

J J N A S F D M O M A J J N A

12Sources: WTRG Economics, Federal Reserve Bank, Energy Information Administration

Australian BenchmarkAustralian Benchmark2004-2014

$300$350

$$200$250$300

$50$100$150

$0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Benchmark

13Sources: Au-Wire, RBA, Macquarie

C ki C l h V l il C di f h l D dCoking Coal – the most Volatile Commodity of the last Decade

Since 2004, Coking Coal Buyers have dealt with three “Booms”

• 2005/6 when the price first crossed $100/mt (from the low $40s/mt)

• April 2008 with 12 month pricing of $300/mt

• 2011/12 with peak pricing of $330/mt• 2011/12 with peak pricing of $330/mt

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C ki C l h V l il C di f h l D dCoking Coal – the most Volatile Commodity of the last Decade

Since 2004, Coking Coal Sellers have dealt with three “Busts”

• 2007

• Fall 2008 Financial Crash – Prices plummeted from over $300/mt to the $120s

• 2013/14 – Prices plummeted from over $330/mt to today’s Benchmark, $120/mt

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I li iImplications

• Some Sellers insisted on Short Term pricingp g

• Became the Norm

• Some Buyers went away from Australia, needed diversity

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Ch i i f M j S b C ki C l P dCharacteristics of Major Seaborne Coking Coal Producers

• Australia• Australia

o Generally large mines

o Very capital intensive

o Long-term take/pay transportation contractsg y

o Highly encouraged to maintain full production due to low marginal cost

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Ch i i f M j S b C ki C l P dCharacteristics of Major Seaborne Coking Coal Producers

• USAGroup 1 (Longwalls)o Highly capitalized, low margin costo ~40% of supply

G ll t fl ibl ith d t lito Generally not flexible with regard to quality

Group 2 (CM units, HWM, Surface)o Comparatively low capitalo Comparatively low capitalo Comparatively high marginal costo Generally more flexible with regard to qualityo Hub and Spoke Systemo Hub and Spoke System

Much of the world’s seaborne met supply is very inelastic.

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US Coking Coal – Recent HistoryUS Coking Coal Recent History

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Seaborne US Coking ExportsSeaborne US Coking ExportsMetric Tons per Year

70

60

70

Millions

40

50

Rest of World

20

30Asia

South America

Europe

0

10

0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013


Seaborne US Coking ExportsSeaborne US Coking ExportsVolume Increase 2013 over 2004

45

35

40

45

Millions

25

30

35

Rest of World

15

20Asia

South America

Europe

5

10

0Last Decade


US Coking ExportsUS Coking ExportsMetric Tons per Year

35

ons

Europe

20

25

30

Millio

10

15

20

Europe

0

5

10

0 4 0

1999

2000

2001

2002

2003

200 4

2005

2006

2007

2008

2009

201 0

2011

2012

2013


US Coking ExportsUS Coking ExportsMetric Tons per Year

Asia25

llion

s

Asia

15

20Mil

10 Asia

0

5

0

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013


L k B k R HiLook Back at Recent History

Very strong volume year for US Met Exports

• Mostly held market share• Mostly held market share• Strong performance in Europe• Strong performance in Asia

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Europe

• Europe has been a growing market for US coals for > 20 yearso Not really a “growth” marketo European mines being shutteredo European mines being shuttered

• In the 1980’s & 90’so UK, Belgium, France & Spaing p

• 1990’s & 2000’so The remaining mines in France, Spain, Belgium and big changes in

Germany

• Now: Czech Republic, Poland, UK & Germany

• US suppliers have benefited from the mine rationalization

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US Market Efforts – Europe 2011-2013

Economically responsive:

• US suppliers giving Europe what they wantpp g g p y

o Lowish quality, Low price (the best Coke is not required)o Good quality coal, discounted to Australian productso Good quality coal, discounted to Australian productso More than competitive on a freight adjusted basiso Competition is among Americans rather than versus

AustraliansAustralians

• In Asia, several things going on

o Satisfying the desire for diversificationo Saving customers a few bucks

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Asia – Growth the last ten years, hungry for diversification

• Supply of “C” Coalso Comparatively low quality coking coalso Generally low in asho Competitive even on a freight and quality adjusted

basisbasis

• Supply of good quality coalso Usually discount the price to achieve more or lesso Usually discount the price to achieve more or less

parity

• Supply of top quality coalsSupply of top quality coalso Customers often absorbs freight differentialo Maintains Long Term supply diversification

M t lik l t ti L T b i27

o Most likely to continue on Long Term basis

C l i 2011 2013Conclusions 2011-2013

• USA held market share, grew volumeg

• Prices tumbled

• Offered low cost productso Shipped increased volume of “C” coals

M t h d b tt d i i C&F b io Matched or bettered pricing on C&F basis

• Steam market here contributed (due to weakness)( )

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Near Term Forecast – Coking CoalNear Term Forecast – Coking Coal

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Coking Coal

FY 2014 (April 1 – March 31, 2015)

Coking Coal

( p , )

Market looks oversupplied

• Many have said 30/35 million tons over supplied• New projects still coming on line – Australia• Productivity gains could contribute to soft prices

o USA – pretty much doneo Australia — will the pain there yield to productivityo Australia will the pain there yield to productivity

gains?o China — will the pain there lead to production cut

backs?backs?

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Coking Coal

FY 2014 (April 1 – March 31, 2015)

Coking Coal

( p , )

Demand

• North America & Europe may see more “recovery” but gains in demand will be relatively minor

• China – not a China expert, but what I read is not overly encouraging.

• India – low steel consumption per capita – could surprise usIndia low steel consumption per capita could surprise us all to the upside

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Steel Use Per Capita 2001-2013Steel Use Per Capita 2001-2013kg/person

600

500

600

400

USA

200

300 ChinaRussiaIndia

100

India

0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

32Source: International Iron and Steel Institute

2014 Coking Forecast - USA2014 Coking Forecast - USA

In 2013 our Suppliers said

P i ti k b t OK

As we look at 2014 – Our suppliers say

• Price stinks, but OK• Need the volume• Price is close to cash cost

• May change our mix• Steam market is at least better than

it was• Steam not an option, too

terrible• Numbers are/may be too difficult

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2014 Coking Forecast - USA

Looking Forward


gImmediate Term

• Atlantic Basin• Atlantic Basino Do our customers continue on the current path of lower

quality blend?o Do Australian producers discount to gain M/S in Europe?o Quality discount could prove to be insufficient to

maintain sharemaintain share

• Pacifico The US is largely out of runway to match cost on qualityo The US is largely out of runway to match cost on quality

& freighto Customer must contribute to maintain supply diversity

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6 Months ago

• Who foresaw the coldest winter in the East in 35 years?

• Who thought Natural Gas would go from $3.30 to $4.50 and look firm

• Who thought Russia would be an aggressor

• Who saw prime met coal dropping to $120/MT?

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Read more History fewer forecasts:


Read more History, fewer forecasts:

• Much of the world’s coking coal production is inelastic• Coking coal has been very volatile for the last 10 years• The market is more in balance then believed

• Something may happen to supply somewhere in the relative near future that will move the price substantially

S W tho Severe Weathero International conflicto Unexpected Economic growth or currency change

(growth in India or China, currency appreciation in Australia)

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