Demand Was Strong In 2012
§ Thermal coal import demand growth hit record levels in 2012 of 80Mt which
was 12% growth;
§ China, India and Japan accounted for an additional 45, 23 and 12 Mt
But Supply was Stronger
§ No major supply disruptions – strikes, derailments, storms, floods, port closures;
§ US supply was ‘freed up’ due to domestic coal being displaced in the energy mix by
the shale gas boom, and looking for a market internationally;
§ Along with significant infrastructure upgrades in Australia and South Africa (and minor
enhancements in Colombia), this resulted in an unprecedented supply surge.
Coking Coal Demand
§ Apart from China, almost all other major end-users were slightly lower in
imports for 2012 compared to 2011. Just as more tonnage came on-line
from most exporters.
Coking Coal Supply - Up
§ The major exporters had a strong year in 2012, moving the market into over-supply
as global growth started to falter.
Coal Sector Pain in 2012
Causes of the Pain in 2012
§ Thermal coal demand was strong in 2012, but supply was stronger pushing prices lower.
§ For coking coal, with only China growing, the increased supply saw prices move lower.
§ Faced with lowering margins all producers moved to lower average costs by producing
more thereby increasing supply further.
§ The US moved more thermal onto the seaborne market due to gas competition at home.
§ Cost inflation driven by labour supply shortages (gas and iron ore boom), increased taxes
§ A stubbornly strong Australian dollar hampered margins of Australian producers;
§ New Chief Executives at 4 of the Top 5 global miners have seen a much greater focus on
cost control, capex and opex.
§ Greenfield and Brownfield projects are currently on the backburner. All management
focus is on maximising production and efficiency from existing operations.
§ Australia has seen record exports in the past 2 quarters with utilisation of assets at or
close to 100%.
China and India Driving Demand
§ In a decade, India and China have gone from 5% of seaborne thermal coal
imports to 35%, accounting for 61% of the demand growth;
§ This has seen a shift in coal procurement mentality from long term contracts
(Japan and Korea), to a much larger spot market.
Indonesia Has Met That Demand
§ In a decade, Indonesia has gone from 14% of the seaborne thermal coal
market supply to 39%, and accounting for 61% of the supply growth;
§ China has exited the market, and South Africa has lost market share.
Coking Coal – China Muscles In
§ In just 5 years, China’s market share has jumped from 4% to 26%,
accounting for almost all the demand growth over the period;
§ Over the same period, Europe’s share has gone from 24% to 16% and
Japan from a dominant 32% down to 23% last year.
And Australia Falters
§ Over the past 5 years, Australia has lost coking coal market share to the
USA, Mongolia and Russia;
§ However Australia had major issues with flooding during 2011 and 2012.
Demographics - Today
The different shapes of the population pyramid between China and India will lead to a
sustained period of growth for India due to its significantly younger population.
The Population Pyramid China 2010 The Population Pyramid India 2010
Source : UN Population Prospects, 2008 revision1 6
Demographics - Tomorrow
The shapes of the population pyramid will remain very different as China becomes an
‘old’ country and India remains “young” with ~60% below 30 years of age.
The Population Pyramid China 2030 The Population Pyramid India 2030
Source : UN Population Prospects, 2008 revision1 7
Per Capita Steel Usage
GDP Growth and Steel Demand
§ On measures of population growth, Urbanisation rates and
increasing GDP per capita, it is quite clear that steel requirements
and therefore coking coal
Emerging Economies Need Power
Coal is Cost Competitive
§ As shown below in this Indian specific example, producing Electricity using coal
is very cost competitive.
§ Hydro is cheaper but usually subject to seasonal weather patterns.
§ As Gas reserves in India have been drastically reduced, its cost has risen from
that shown below.
Thermal Demand – Continues
to be Driven by India and China
§ Asian imports have grown strongly in H1 2013, with India leading the charge:
§ Indian imports are up nearly 30Mt ytd, driven by poor domestic coal and gas
supply and surging new coal-fired capacity; India will be the No. 2 importer
this year, displacing Japan.
§ Chinese import growth has slowed in recent months but is still positive;
Supply – Indo/Aus Growing
§ 2013 has seen only Indonesia, Australia and Russia (mainly to Europe) growing
– Indonesia continues to dominate growth with exports rising over 25Mt ytd;
– Australia is also growing as producers seek to offset low prices by producing more
in an effort to lower their average costs.
– Colombia, South Africa and the USA have seen strikes, environmental regulations,
the lowering price, and rising ocean freights all work against them this year.
Steel Production Growth
§ China now accounts for almost half of world steel production and its steel
industry continues to grow.
Coking Coal Demand Growth
§ China’s GDP growth continues so it continues to import coking coal.
§ Japan is up mainly due to the yen depreciation benefitting their exporters.
§ 10Mt of steel capacity is due to come online in India in 2013/14.
Coking Coal Supply Growth
§ Australian Coking Coal supply growth continues as expansions come on-line and
efficient utilisation of assets is now the focus to lower average costs
§ Canada is still expanding but the drop in price has hurt some of their exporters.
§ Low prices and higher freight is pricing the US out of the Asian growth markets.
Australia is High Cost
§ Australia has high cost and low productivity issues to overcome if it wants to
be in a position to meet the growing coal demand from Asia
Op Costs are Reducing
§ However it appears costs can be reduced when the focus is on production
Thermal Coal Demand Long Term
§ For these 6 countries alone the total imports were 613Mt in 2012.
§ In 2020 it is expected to be 990Mt, and rising to 1,547Mt in 2030.
US$/t Thermal Coal Price Forecasts
Analyst 2014 2015 2016 2017 2018 Long
Group 97 110 116 105 100 83
Markets 95 91 90 90 99 90
Stanley 91 105 105 100 100 97
UBS 89 94 95 95 98 85
HTM 89 92 94 96 98 87
Bank 86 90 90 90 95 80
Bank 86 89 91 93 95 83
Numis 73 69 69 70 72 65
Average 88 93 94 92 95 84
Hard Coking Coal Demand
§ In 2012 these 6 countries were responsible for 162Mt of import demand.
§ By 2020 we expect these 6 countries to import 246Mt of HCC and this
will rise to be 307Mt in 2030.
Demand is Strong
§ Global thermal coal demand grew by a massive 80Mt (12%) in 2012, a
record year, and the rate is continuing in 2013 and expected to continue
through the next 2 decades;
§ This is being driven primarily by India and China, but the secondary
sources of growth remain important such as Korea, Taiwan, Malaysia;
§ Coal is a cheap, widely available fuel source
§ Nuclear is on the outer, heavily subsidised renewables are starting to
become unpopular and cannot provide base load power, and hydro has
environmental and social challenges
Supply Will Struggle to meet the Challenge
§ Australia, while providing for a safe jurisdiction in which to invest is
hindered by high operating and capital costs and is slow to get projects
§ The Indonesians will therefore continue to capitalise on their strengths of
being quick to market, close in proximity to the demand centres, and the
ability to utilise their river systems to continue to satisfy the majority of the
§ Fundamentally, coking coal remains scarce despite the current
oversupply, which will probably take 24 months to work through the
§ Chinese steel growth continues, but for how long….
§ The growth in steel usage globally is tied to GDP. Consequently it will be
the developing economies which will continue to drive steel growth and
therefore coking coal demand.
§ Australia holds a dominant position in Coking Coal supply.
§ The US, Canada, Mongolia and Russia are the current threats to
Australian dominance in coking coal supply. The US in particular are
aggressively looking for market share in Asia.
§ Mozambique is expected to have infrastructure in place by 2016/17 and
so will compete.
§ Indonesian coking coal shows promise but its deposits are remote.
§ Provided it can provide low cost coking coal, Australian dominance will
be hard to displace.
International Head Office
Level 11, 82 Eagle Street
Brisbane, Queensland, 4000, Australia
+61 7 3211 9911
HDR | Salva Capabilities
Across the Mining Life Cycle
Welcome to HDR | Salva
§ HDR | Salva, delivers exploration, mining and commodities consultancy
services to some of the world’s largest mining and investment firms.
§ From Markets to Exploration to Mining, HDR | Salva has the capabilities to
assist in all phases of the mining lifecycle.
§ HDR | Salva’s parent company, HDR is a global, employee-owned
architecture, engineering, consulting and construction services firm. With
more than 8,000 professionals in nearly 200 offices worldwide, we are
committed to helping clients manage complex projects and make valued
and informed decisions.
HDR | Salva Service Capabilities
Our services cover the entire lifecycle of a mine
§ A global solution provider from “Conceptual Stage” to “Closure
Stage” for mining projects and operations.
§ Strategic management processes and optimisation of mining
§ Covering multiple commodities and located in diverse geographical
ü Due Diligence & Valuations
ü Commodity Analysis & Forecasting
ü Energy Analysis
ü Infrastructure Reviews
ü Policy & Regulations
ü Economic Modelling
Markets & Economics
§ Our consulting and analytics team, in conjunction with
our flagship publication group, Salva Report, delivers
marketing, supply & demand studies, and commodity
§ Our global expertise is applied across due diligence
projects, infrastructure studies and commodity analysis.
§ We provide commodity focused publications, consulting,
forecasts and analysis across multiple commodities for
leading organisations around the globe.
§ The Salva Report suite of publications will soon include
an Australian focused edition.
ü Target Generation
ü Exploration Design & Budgeting
ü Land Access, Community &
ü Site Safety
ü Field Geology Management
ü Turnkey Project Delivery
§ At HDR | Salva, we specialise in the exploration phase of
resource development and provide individual geologists
for field support right through to “turn-key” exploration
management solutions for projects of all sizes,
geographies and complexities.
§ Our project management specialists ensure projects run
on time, on budget and to the safest working environment.
§ We work to deliver land access agreements on behalf of
our clients that result in workable outcomes for all parties.
§ Beginning at target generation through to feasibility
studies, we manage and coordinate a wide variety of
§ Utilising our in-house technical services and
supplementing with specialist disciplines as required,
HDR | Salva provides seamless project assessments,
studies and permitting delivery for our clients.
§ HDR | Salva also works closely with HDR’s
environmental and permitting practice, which is
focused on streamlining and managing the regulatory
process for our clients throughout a project’s life cycle.
ü Mine Planning & Economic Analysis
ü Study Management
ü Marketing Studies
ü Environmental & Permitting
ü Rail, Port, Power & Waste Treatment
ü Site Infrastructure Studies
Feasibility & Permitting
ü Site Safety & Training
ü Project Management
ü Rail Port & Power
ü Water Treatment
ü Mine Operations Review
§ Our technical and operational services extend across
the mining development phase. HDR | Salva’s
capabilities in rail, port and power are critical inputs to
successful mine and infrastructure development.
§ We also supply experienced personnel to provide
operational and project support during the
§ A safe and skilled workforce is critical during major
construction and development projects. HDR | Salva’s
safety team can provide bespoke safety management
and training solutions for each project as required by
ü Site Safety & Training
ü Project Management
ü Mine Operations Review
ü Site Operation Support
§ HDR | Salva can provide integrated services to assist
our clients in maximising the value of their projects
through efficient mining techniques.
§ Our team of geologists, engineers and analysts
specialise in identifying process bottlenecks in the
entire pit to port value chain.
§ HDR | Salva’s commitment to safety is recognised
through key roles on a number of global mining
§ Post mine operations, we also provide mine closure
and site rehabilitation services.
§ HDR | Salva have been actively involved in closure and
rehabilitation planning for a large number of mining
§ HDR | Salva can provide conceptual and detailed mine
closure plans including design and implementation of
rehabilitation monitoring and assessment programs,
development of post-closure groundwater management
strategies, operational support and environmental
management supervision of multi-disciplinary closure
and rehabilitation activities.
ü Mine Reclamation
ü Water Treatment
ü Environment Compliance &
§ Proactive, collaborative and responsive stakeholder and public
outreach is utilised throughout a project in order to minimise risk
and costly development delays or cancellations.
§ Those taking a more holistic, strategic and continuous approach
to stakeholder engagement are finding it easier to foster and
maintain project understanding, acceptance and support among
§ At HDR | Salva, we work to understand what motivates public
resistance and use proven and emerging best practices for
outreach, throughout all stages of planning and development.
ü Sustainability Management
ü Community Consultation
ü Corporate Communications
ü Strategic Planning
§ HDR | Salva’s consulting team is comprised of skilled geological
and mining professionals that provide the necessary technical
services across the resource life cycle.
§ Our team of geologists utilise their technical expertise and up-to-date
geo-statistical and resource modeling software to deliver our
client’s resource modeling requirements to the relevant
international reporting standard.
§ For project evaluation, we utilise our global data base of mine
operating and capital costs, and our techno-commercial
expertise, to build financial models to evaluate mine economics.
§ In addition, HDR | Salva can assist our clients with public equity
raising on major global stock exchanges.
ü Due Diligence & Valuations
ü Resource Geology
ü Mine Planning
ü Water & Natural Resources
ü Environmental Services