north carolina coal institute fall education & engineering...
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North Carolina Coal InstituteFall Education & Engineering Seminar
International Markets UpdateU.S. Origin Coal October 24, 2013
Mid Pines, North Carolina
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2013 Market» Although the rate of growth is lower than previous» Although the rate of growth is lower than previous
years, year-on-year demand for seaborne coalcontinues to grow
» Customer requirements are changing• Due to the challenging state of the global economy, customers
are utilizing lower grade coking coals and thermal coals toare utilizing lower grade coking coals and thermal coals toreduce costs
» Pricing in the market is being driven byoversupply
» The Chinese economy, and demand for rawmaterials, is not as dismal as many believe
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Global population is concentrated in Asia
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Global Population
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GDP Annual Growth (%) 2000-2012
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GDP per Capita (current US$)Year to Year Change (%)Year-to-Year Change (%)
Note the YOY change in India
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CAGR GDP per Capita 2000-2012 (current US$)
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China GDP Growth Rates Annual Economic Contribution
The relationship between GDP growth rates andThe relationship between GDP growth rates and demand for imported raw materials is diminishing
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Seaborne Trade & Consumption Trends for Coal» Regional consumption of coal has changed significantly since
20002000
» Although coal’s portion of the energy mix may be declining inmature and developed economies, coal consumption ismature and developed economies, coal consumption isincreasing in emerging and developing countries
» Coal, as a low cost and reliable source of energy in theseemerging and developing countries is contributing toemerging and developing countries, is contributing toeconomic development and improved living standards for thepeople in these countries
» Investment in coal production, railway infrastructure, coalexport terminals, coal import terminals, and dry bulk carrierswill support the continued growth of coal consumption inth i d d l i t ithese emerging and developing countries
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Seaborne Coal DevelopmentSeaborne Coal Development1990 to 2013
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Seaborne Coal GrowthSeaborne Coal Growth2012 to 2013 (forecast)
2012 2013 % Change
Coking 272.7 290.7 6.6
Thermal 840.2 874.9 4.1
Total 1112.9 1165.6 4.7
11Tonnage expressed in millions of metric tons
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Australia Seaborne Coal Export DevelopmentAustralia Seaborne Coal Export Development2000 to 2012
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Canada Seaborne Coal Export DevelopmentCanada Seaborne Coal Export Development2002 to 2012
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China Seaborne Coal Export DevelopmentChina Seaborne Coal Export Development2000 to 2012
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Colombia Seaborne Coal Export DevelopmentColombia Seaborne Coal Export Development2000 to 2012
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Indonesia Seaborne Coal Export DevelopmentIndonesia Seaborne Coal Export Development2000 to 2012
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South Africa Seaborne Coal Export DevelopmentSouth Africa Seaborne Coal Export Development2003 to 2012
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U S A Seaborne Coal Export DevelopmentU.S.A. Seaborne Coal Export Development2000 to 2012
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Evolution of seaborne trade flows of coalChange 2000 to 2012- Millions of tons
Region Asia-Pacific (ex China)
China Europe India North America
South America
Origin (export from)
Australia 70.54 60.68 -11.82 18.11 -3.78Canada 2.25 9.88 -2.16 0.83 -0.93 0.49Chi 41 56 1 58 0 92 0 58China -41.56 -1.58 -0.92 -0.58
Colombia 2.03 1.95 34.31 0.16 -1.72 6.97Indonesia 116.17 115.45 2.17 92.58 -0.41 -1.30
South Africa
8.61 12.73 -41.73 21.62 0.48 0.57
USA 9.90 9.12 35.86 6.16 -7.75 5.04
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Macro View Seaborne Market » Deja vu all over again:j g
» In the 70’s and 80’s coal producers increased productionto meet what was thought to be an ever growing demandof coal in Japan. Supply overpassed demand.
• The resulting over supply period lasted 20 years
Si 200 i i i d h US$ 0 Billi» Since 2005, it is estimated that US$50 Billion wasinvested in coal production, railway infrastructure, coalexport terminals, coal import terminals, and dry bulkp , p , ycarriers to support what was thought to be an evergrowing demand of coal from China. It appears supplyagain has overpassed demandagain has overpassed demand.
• Can the result be an over supply period lasting ?? years20
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Macro View Seaborne Market (2)» Current market conditions influenced more by increasing
supply than demand. Supply has simply increased at afaster pace than the increase in demand
» Prices for thermal and met coals correcting steeply» Prices for thermal and met coals correcting steeplydownward
» Current pricing conditions will lead to a sharp and rapid» Current pricing conditions will lead to a sharp and rapiddecline in supply. Current prices are below cash costsfor all but the lowest cost mines
» Only the low cost mines / producers will manage throughthe correction
The swift decline in prices should accelerate the period» The swift decline in prices should accelerate the periodneeded for supply and demand to reach balance 21
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700
800
500
600
MM)
300
400
Metric
Ton
s (M
100
200
M
0
00
2010 2011 2012 2013
Europe Americas Asia
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68.3%80.0%
Thermal Supply (Pacific) ‐ % change 2010 to 2013
38.8%
28.9%
56.8%
40.0%
60.0%
18.2%
0.0%
20.0%
Russia Eastbound China Indonesia Pacific Australia South Africa Colombia WC North010 to 201
3
‐25.5%‐40.0%
‐20.0%
Russia Eastbound China Indonesia Pacific / India Bound
Australia Pacific/India
Bound
South Africa Eastbound
Colombia Westbound
WC North America
% Cha
nge 20
‐73.1%‐80.0%
‐60.0%
‐100.0%
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Russia Eastbound
4% China3%
South Africa Eastbound
9%
Colombia Westbound
3%
WC North America
2%2010
Russia Eastbound
5% China1%South Africa
Eastbound8%
Colombia Westbound
1%
WC North America
2%2011
Indonesia Pacific / India
Bound
Australia Pacific/India
Bound Indonesia Pacific / India
Australia Pacific/India
Bound25%
Bound53%
26% Pacific / India Bound58%
Russia WC N th 2012
Russia E tb d
Colombia W tb d
WC North A i 2013Eastbound
5%China1%
South Africa
Eastbound8%
Colombia Westbound
2%
North America
2%
2012 Eastbound5%
China1%
South Africa Eastbound
8%
Westbound2%
America2%
2013
Indonesia Pacific / India
Australia Pacific/India Bound26% Indonesia
Pacific / I di B d
Australia Pacific/India
Bound26%
Bound56%
India Bound56%
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Australia Thermal Coal Exports LTM Comparison thru August 2013
+15.3%
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Indonesia Thermal Coal Exports LTM Comparison thru July 2013
+13.5%
+24 0%
13.5%
+7.1%+24.0%
-5.9%
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South Africa Thermal Coal Exports LTM Comparison thru July 2013
-5.6%
-14.7%
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Benchmark & Index Pricing – Thermal Coal» In a oversupplied market, seaborne traded thermal coal
is trading at a discount to the established benchmarksis trading at a discount to the established benchmarks• Current physical transactions in Europe are priced at $2-$3/MT
discount to API2• Current physical transactions for South African coal in India are pricedp y p
at $3-$12/MT discount to the API4 plus quality adjustments for lowercalorific value
» Customers are shifting to lower quality coals i e» Customers are shifting to lower quality coals, i.e.calorific value ranging from 4200 GCV (7560 BTU) to, 5500 GCV (9900 BTU), and reducing the consumptionof coals with higher calorific value (and higher costs)of coals with higher calorific value (and higher costs)
» The Qinghuangdao Index, and the newly establishedAPI8 Index, are set by the price of Chinese domesticy pcoals
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Newcastle Weekly PricesNewcastle Weekly PricesPrompt Quarter/ US$/MT
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South Africa Westbound
Oceania Westbound
10%
2010South Africa Westbound
11%
Oceania Westbound
8%2011
North Europe37%
Colombia/Ve
Westbound13%
North Europe32%
Colombia/Ve
US Eastbound
6%
/nezuela
Eastbound34% US
Eastbound11%
nezuela Eastbound
38%
S th O i South Oceania2013
North E
South Africa
Westbound
11%
Oceania Westboun
d5%
2012
North E
South Africa
Westbound
11%
Oceania Westboun
d4%
2013
Europe33%
US
Colombia/Venezuela
b d
Europe34%
US
Colombia/Venezuela
Eastbound17%
Eastbound34%
US Eastbound
16%
Eastbound35%
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300 0%
Thermal Supply (Atlantic) ‐ % change 2010 to 2013
243.2%
200 0%
250.0%
300.0%
100.0%
150.0%
200.0%
2010
to 201
3
6.9%23.9%
1.8%0.0%
50.0%
% Cha
nge 2
‐50.6%
‐100.0%
‐50.0%
North Europe US Eastbound Colombia/Venezuela Eastbound
South Africa Westbound
Oceania Westbound
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Colombian Thermal Coal Exports LTM Comparison thru September 2013
-5.2%
-7.2%
+21.5%
-81.7%
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API2 Weekly PricesAPI2 Weekly PricesPrompt Quarter/ US$/MT
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API4 Weekly PricesAPI4 Weekly PricesPrompt Quarter/ US$/MT
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800
900
600
700
MM)
300
400
500
Metric
Ton
s (M
100
200
300M
0
2010 2011 2012
EU Other Europe C.I.S North America South America AsiaU Ot e u ope C. .S o t e ca Sout e ca s a
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250
Total Imported metallurgical coal by region
200
)
100
150
ric Ton
s (M
M)
50
100
Met
0
2010 2011 2012 2013
EU Other Europe C.I.S. South America Asia
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Others8%
2011Others10%
2012
Australia
USA27%
8%
Australia51%
USA26%
53%
Canada12%
51%
Canada13%
2013
Others11%
Australia52%
USA25%
Canada12%
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Japan Coking Coal Imports2008-2012
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Korea Coking Coal Imports2008-2012
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Australian Coal Producers “Fighting to protect their markets”
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Major Seaborne Coking Coal Exports Comparison FY2011 vs. FY2012
+5.4%
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Australia Coking Coal Exports Comparison FY2011 vs. FY2012
+16%
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Australia Coking Coal Exports LTM Comparison thru August 2013
+12.2%
+11.2%
+13.9%
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U.S. Coking Coal Exports LTM Comparison thru June 2013
-8.1%
-41.4%
-8.2%
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Benchmark & Index Pricing – Coking Coal»In a oversupplied market, less than 10% of
b d d ki l i i d hseaborne traded coking coal is priced at the"headline” benchmark price
»Customers are shifting to shorter term pricing• Annual > Quarterly > Monthly > Spot
»Indices are based on thinly traded markets andare struggling to accurately reflect physicaltransactionstransactions
»Increased pricing volatility resulting from thetransition to different pricing methodologytransition to different pricing methodology
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Seaborne Coking Coal Benchmark Pricing
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SSummary» The global market for both coking coal and thermal
coal continues to grow but is challenged by currentcoa co t ues to g o but s c a e ged by cu e tmarket pricing
» The evolution of pricing models, and changing qualityp g , g g q yrequirements, will cause coal producers to becomemore short term focused
» The current oversupplied market, and low prices, willeventually force coal producers to cut production andreduce investment in new projectsreduce investment in new projects
» Low cost producers will survive and benefit from theadjustment in the marketplaceadjustment in the marketplace
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G d N / B d N StGood News / Bad News Story
»The good news is that the market seems toghave “bottomed”. Market prices for cokingcoal and thermal coal have stabilized. Sellersare seeing the first signs of improved pricing
»The bad news is that the market, and the,industry, are likely to remain in this low pricedenvironment until annual demand growthabsorbs the excess production currently in themarket and the projects that are in the finalstages of developmentstages of development.
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Credits» John T. Boyd Company
» Financial Times
I t ti l M t F d» International Monetary Fund
» Macquarie Research
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Contact Info
Ernie ThrasherErnie Thrasher
Xcoal Energy & ResourcesgyPhone: +1 (724) 520-1630E-mail: [email protected]: www.xcoal.comWeb: www.xcoal.com
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