Abdul Hadhi, Argus Media - Energy and Commodity Price Benchmarking and Market Insights

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Abdul Hadhi, Argus Media delivered the presentation at IMM’s 2014 Kalimantan Coal Conference.

The IMM’s Kalimantan Coal Conference brings together 120+ senior executives, decision makers from government, mining, infrastructure, shipping and supply sectors to discuss new policies and strategies for tackling the current and emerging issues within the burgeoning Kalimantan coal sector.

For more information about the event, please visit: http://www.immevents.com/kalicoalconference13

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Abdul Hadhi, Argus Media - Energy and Commodity Price Benchmarking and Market Insights

  1. 1. London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg illuminating the markets Energy and commodity price benchmarking and market insights
  2. 2. Global coal demand and supply - implications for prices and miners Balikpapan Abdul Hadhi, Editor, Coal & Petcoke, Asia Pacific 3 September 2013
  3. 3. Presentation summary •  US coal exports grow •  Poorer Europe switching from South Africa •  Indonesia and Australia grapple with higher costs •  Chinese demand growth dependent on price, hydro •  Indian buyers hit by weakening rupee •  Should we be worried? •  Amid volatility, indexation grows
  4. 4. Argus: quick facts
  5. 5. illuminating the markets Argus is a leading energy price reporting agency •  World’s largest independently held energy price reporting agency •  Price indexation, news, data and analysis for energy and commodity markets •  Founded 1970, more than 500 full time staff. •  19 offices globally, including London, Houston, Washington, New York, Calgary, Rio de Janeiro, Singapore, Dubai, Beijing, Tokyo, Sydney, Moscow, Astana and other key centres of the energy industry. •  8000 price assessments a day across 80 energy publications Copyright © 2013 Argus Media Ltd. All rights reserved.
  6. 6. illuminating the markets •  Coal: principal provider of price indexation for physical and derivatives markets in Europe, South Africa and Asia– Pacific •  Natural gas: important UK and NWE index in gas-to-gas pricing, used by Gazprom in Russian gas exports to Europe, used by French energy regulator CRE Argus and generation fuels Copyright © 2013 Argus Media Ltd. All rights reserved.
  7. 7. illuminating the markets •  Largest team of coal reporters of any publisher •  Coal correspondents in Australia, Singapore, Beijing, Tokyo, Moscow, London, South Africa, Washington DC and Colombia •  Publisher of: Coal Daily International, Argus/ McCloskey Coal Price Index Report, Argus/ Coalindo Indonesian Coal Report, Argus Steel Feedstocks, Argus Russian Coal, Coal Daily (US market), Coal Transportation report (US market) Argus and coal Copyright © 2013 Argus Media Ltd. All rights reserved.
  8. 8. illuminating the markets •  Cif ARA /API 2 •  Fob Richards Bay/API 4 •  Fob Newcastle 5500/API 5 •  Fob Newcastle/API 6 •  Cfr south China/API 8 •  Fob Indonesia/ICI/HBA •  Fob Puerto Bolivar/API 10 Thermal coal indices Copyright © 2013 Argus Media Ltd. All rights reserved.
  9. 9. illuminating the markets •  Fob Australia/API C1 •  Cfr north China •  North China domestic •  Cfr east coast India •  Fob Hampton Roads (mid vol/high vol) •  Fob Colombia Coking coal indices Copyright © 2013 Argus Media Ltd. All rights reserved.
  10. 10. Coal market – enough demand to match supply?
  11. 11. illuminating the markets 717   311   4   788   284   5   861   276   5   0   100   200   300   400   500   600   700   800   900   1000   Steam   Coking   Lignite   Mn  t   2009   2010   2011   Growth of global physical coal trade Source:  WCA   Copyright © 2013 Argus Media Ltd. All rights reserved.
  12. 12. illuminating the markets Indonesia, Australia lead top ten coal exporters Source:  WCA   Copyright © 2013 Argus Media Ltd. All rights reserved. 309   284   124   97   75   72   34   309   144   110   34   75   72   33   0   140   14   63   0   0   1   0   50   100   150   200   250   300   350   Indonesia   Australia   Russia   USA   Colombia   S.  Africa   Kazakhstan   Mn  t   Total   Steam   Coking  
  13. 13. illuminating the markets Shale-induced rise in US exports was a game changer Source:  EIA   -­‐10   0   10   20   30   40   Jan  07   Oct  07   Jul  08   Apr  09   Jan  10   Oct  10   Jul  11   Apr  12   Jan  13   Mn  t   Exports   Imports   Net  exports   Copyright © 2013 Argus Media Ltd. All rights reserved.
  14. 14. illuminating the markets US coal production steady to higher -60 -40 -20 0 20 40 60 2011 2012 2013 2014 0 20 40 60 80 100 Mn    t   Western region (right axis) Appalachian region (right axis) Interior region (right axis) Total production (left axis) Year-­‐on-­‐year  change  (mn  t)   Source:  EIA   Copyright © 2013 Argus Media Ltd. All rights reserved.
  15. 15. illuminating the markets •  US domestic consumption off 2012 lows on reverse coal-to-gas switching by US generators •  But mostly stockpiles being drawn down rather than new deals •  Coal exports expected to be 102mnt in 2013 compared to 114mnt in 2012 – lower but still big volumes Previous annual record was 102mn t in 1981 •  In Q1, Europe took up 53pc, Asia 28pc. Coking vs thermal split 60:40 US exports continue but consumption recovers Copyright © 2013 Argus Media Ltd. All rights reserved.
  16. 16. illuminating the markets US coal consumption increasing Source:  EIA   -120 -90 -60 -30 0 30 60 90 120 150 180 2011 2012 2013 2014 0 10 20 30 40 50 60 70 80 90 100 Mn  t   Electric power (right axis) Retail and general industry (right axis) Coke plants (right axis) Total consumption (left axis) Consumption forecast (left axis) Year-­‐on-­‐year  change  (mn  t)   Copyright © 2013 Argus Media Ltd. All rights reserved.
  17. 17. illuminating the markets US electric power coal stocks drawn down Forecast 0 25 50 75 100 125 150 175 200 225 250 Jan 2005 Jan 2007 Jan 2009 Jan 2011 Jan 2013 Mn  t   Note: Colored band around stock levels represents the range between the minimum and maximum from Jan. 2005 - Dec. 2012. Source:  EIA   Copyright © 2013 Argus Media Ltd. All rights reserved.
  18. 18. illuminating the markets •  Unlike US, Europe uses more “dirty” coal instead of “cleaner” natural gas •  Coal is cheaper than natural gas in Europe •  More coal is used due to backlash against nuclear energy after Fukushima •  But this is cheaper coal coming mostly from the US. Colombia is also a source. •  South Africa unable to get the price it needs from Europe. Asia overtakes Europe as main buyer of South African coal Europe buys coal but cheaper product Copyright © 2013 Argus Media Ltd. All rights reserved.
  19. 19. illuminating the markets South Africa coal exports less stable 3.00   4.00   5.00   6.00   7.00   8.00   Jan  12   May  12   Sep  12   Jan  13   Jun  13   Mn  t   Copyright © 2013 Argus Media Ltd. All rights reserved.
  20. 20. illuminating the markets API 2 falls below API 4 often 60   80   100   120   140   Jan  10   Aug  10   Mar  11   Oct  11   May  12   Dec  12   Jul  13   $/t   API2   API4   Copyright © 2013 Argus Media Ltd. All rights reserved.
  21. 21. illuminating the markets South Africa coal now looks east India,  22.6,  33%   China,  12.4,  18%   Europe,  11.7,  17%   Others,  21.6,  32%   India   China   Europe   Others   Mn  t   Copyright © 2013 Argus Media Ltd. All rights reserved.
  22. 22. illuminating the markets •  More tonnages headed to Asia from non-traditional sources (South Africa, Russia, Colombia, US) •  Traditional Australian and Indonesian miners grapple with higher costs. $70 for Australia, super profits tax , $55 for indo, higher IUP royalties •  Weaker prices don’t help •  Australian producers resort to cutting jobs but not production •  Indonesia producers not looking to cut output either Asia-Pacific miners face more challenges Copyright © 2013 Argus Media Ltd. All rights reserved.
  23. 23. illuminating the markets •  Indonesia exported around 200mn t of coal in 1H 2013, or more than two thirds of 2012 total exports •  With producers not cutting output, exports could be around 400mn t in 2013 barring any shocks •  Indians may overtake China as biggest buyer but will remain price sensitive due to weak rupee •  Factors to watch include Presidential elections next year, higher DMO Indonesian exports to increase Copyright © 2013 Argus Media Ltd. All rights reserved.
  24. 24. illuminating the markets 190   175   129   105   66   41   33   146   121   97   86   62   32   27   38   54   32   19   4   9   6   0   20   40   60   80   100   120   140   160   180   200   China   Japan   S.  Korea   India   CN  Taipei   Germany   UK   Mn  t   Total   Steam   Coking   Asia dominates top coal importers list Source:  WCA   Copyright © 2013 Argus Media Ltd. All rights reserved.
  25. 25. illuminating the markets Top three coal producers include China, India Source: WCA, mn t Copyright © 2013 Argus Media Ltd. All rights reserved.
  26. 26. illuminating the markets   Averages/month   Full year TRADE SUMMARY 2012 2011 YoY % ± 2012 2011 China thermal net coal imports (mn t/m) 15.1 10.7 41% 180.8 128.4 Imports of Australian bituminous (5,500 kcal/kg) 3.24 1.4 131% 38.9 16.38 Imports of Australian sub-bituminous (4500 kcal/kg) 0.38 0.28 36% 4.59 2.24 Imports of Indonesian lignite (3500 kcal/kg) 4.22 2.78 52% 50.6 33.32 Imports of Indonesian sub-bit (4500kcal/kg) 2.62 3.42 23% 31.46 40.99 Chinese demand is still growing (mn/t) Source:  China  customs  data   Copyright © 2013 Argus Media Ltd. All rights reserved.
  27. 27. illuminating the markets •  Chinese thermal coal imports increase •  Net imports in first 6 months was 100mn t – 11pc increase •  But power plants also using more hydropower •  Fear of coal prices in deflationary spiral – buyers deferring or defaulting expecting price weakness – repeat of 3Q 2012? •  Proposed import ban on low cv coal creates uncertainty While Chinese imports increase, prices don’t Copyright © 2013 Argus Media Ltd. All rights reserved.
  28. 28. illuminating the markets API 8 vs China domestic 60   80   100   120   140   May  12   Aug  12   Dec  12   Apr  13   Jul  13   $/t   API  8   China  domesYc   China  domesYc  (less  17%)   Copyright © 2013 Argus Media Ltd. All rights reserved.
  29. 29. illuminating the markets •  Indian domestic output increases •  But fails to keep pace with demand •  Demand from power, cement, paper and other textiles •  Bulk of imports from Indonesia •  Weak rupee makes India price conscious India buys more but weak rupee a concern Copyright © 2013 Argus Media Ltd. All rights reserved.
  30. 30. illuminating the markets Key Asian prices – stable to weak 20   40   60   80   100   120   May  12   Aug  12   Dec  12   Apr  13   Jul  13   $/t   API5   API8   ICI2   ICI4   Copyright © 2013 Argus Media Ltd. All rights reserved.
  31. 31. illuminating the markets •  Talk of Chinese defaults again •  Coal stockpiles at Indian power plants higher than last year •  Miners suffering from high costs •  Growing output puts pressure on prices •  Australian producers report losses •  More favour indexation against fixed price Should we be worried? Copyright © 2013 Argus Media Ltd. All rights reserved.
  32. 32. illuminating the markets •  Buyers in China and India look for low prices and value, and focus less on quality ◦  Less focused on relationships and security of supply ◦  Will swing to where ever coal is cheapest •  This forces producers to be more responsive to the market •  This means the Asian market will be more exposed to shifting prices •  Use of indices and market-based mechanisms will grow Indexation reduces price risk Copyright © 2013 Argus Media Ltd. All rights reserved.
  33. 33. illuminating the markets •  Reflects cfr South China 5500 kcal •  Launched May 2012, publishing weekly price with IHS McCloskey •  Comprising market survey of 15-20 key participants •  Deals done by international producers/traders •  Methodology is same as other API indices ◦  50% volume weighted average of confirmed deals ◦  50% average of bids and offers divided by market position •  Derivatives deals around 5 mn t mark •  CME, ICE and SGX offer clearing API 8 represents south China import market Copyright © 2013 Argus Media Ltd. All rights reserved.
  34. 34. illuminating the markets •  Reflects fob Australia for high ash 5500 kcal •  Launched May 2012, publishing weekly price with IHS McCloskey •  First API 5-linked physical deal in Dec 2012 •  OTC derivative deal done Jan 2013 •  Cleared by CME from June and cleared trades done •  Key buyers are Chinese but also relevant to Korea and Taiwan, which are already using API 8 as reference API 5 – index for Australian off-spec coal Copyright © 2013 Argus Media Ltd. All rights reserved.
  35. 35. illuminating the markets Development of the derivatives market Source: Marex Spectron ‘000  t   Copyright © 2013 Argus Media Ltd. All rights reserved.
  36. 36. illuminating the markets •  China and India continue to import more •  US slowly restarting to consume coal •  Japan using more coal after Fukushima •  Europe using more coal as its cheaper than natural gas •  But this is not yet enough •  Supply still exceeds demand •  More cutbacks needed •  Amid more uncertainty, market turns to indexes Famous last words … Copyright © 2013 Argus Media Ltd. All rights reserved.
  37. 37. Thank you Abdul Hadhi Editor, Coal and Petcoke, Asia-Pacific, Argus Media Email: abdul.hadhi@argusmedia.com Phone: +65 6496 9966 URL: www.argusmedia.com Copyright notice Copyright © 2013 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus.   Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, DEWITT, FMB, FUNDALYTICS, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Limited. Visit www.argusmedia.com/trademarks for more information.   Disclaimer All data and other information presented (the “Data”) are provided on an “as is” basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party’s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.

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