• Share
  • Email
  • Embed
  • Like
  • Private Content
Kirill Kozenyashev, Severstal Resources: Coking coal market perspectives
 

Kirill Kozenyashev, Severstal Resources: Coking coal market perspectives

on

  • 630 views

Kirill Kozenyashev, Head of Strategy and Business Development, Mining Business, Severstal Resources delivered this presentation at the 2013 Russian & CIS Coal Summit. Co-organised with Informa's Adam ...

Kirill Kozenyashev, Head of Strategy and Business Development, Mining Business, Severstal Resources delivered this presentation at the 2013 Russian & CIS Coal Summit. Co-organised with Informa's Adam Smith Conferences, the Summit provides top CEOs, investors, analysts and officials with a platform for debate, analysis and networking with the key representatives from Russia's major coal producing companies. For more information about the annual event, please visit the conference website: http://www.immevents.com/russiaciscoal

Statistics

Views

Total Views
630
Views on SlideShare
630
Embed Views
0

Actions

Likes
0
Downloads
13
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Kirill Kozenyashev, Severstal Resources: Coking coal market perspectives Kirill Kozenyashev, Severstal Resources: Coking coal market perspectives Presentation Transcript

    • Coking coal market perspectives Adam Smith Summit Moscow, May 15, 2013 Kirill Kozenyashev Head of Strategy and Business Development, Mining Business 1
    • Disclaimer These materials are confidential and have been prepared by OAO Severstal (Severstal) solely for your information and may not be reproduced, retransmitted or further distributed to any other person or published, in whole or in part, for any other purpose. These materials may contain projections and other forward-looking statements regarding future events or the future financial performance of Severstal. You can identify forward-looking statements by terms such as “expect,” “believe,” “estimate,” “intend,” “will,” “could,” “may” or “might”, or other similar expressions. Severstal cautions you that these statements are only predictions and that actual events or results may differ materially. Severstal will not update these statements to reflect events and circumstances occurring after the date hereof. Factors that could cause the actual results to differ materially from those contained in projections or forward-looking statements of Severstal may include, among others, general economic and competitive environment conditions in the markets in which Severstal operates, market change in the steel and mining industries, as well as many other risks affecting Severstal and its operations. These materials do not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any securities of Severstal in any jurisdiction, nor shall they or any part of them nor the fact of their presentation, communication or distribution form the basis of, or be relied on in connection with, any contract or investment decision. No representation or warranty, express or implied, is given by Severstal, its affiliates or any of their respective advisers, officers, employees or agents, as to the accuracy of the information or opinions or for any loss howsoever arising, directly or indirectly, from any use of these materials or their contents. 2
    • Contents • Coking coal industry – global perspective • Russian coking coal industry • Severstal new coking coal projects update 3
    • Main trends in global coking coal industry Trends 1 Limited new supply 2 Implications and comments • • • • • High quality coking coal is hard to find Prices are likely to increase in the mid- to long-term due to gradual depletion of quality coals New growth projects are predominantly located in remote regions with no infrastructure • Australian and US coal producers are facing significant escalation of cash costs High-cost producers are “squeezed out” from the cost curve or need to reduce production volumes Coal companies margins are eroding Weak demand in the mid-term • • • Coal players are cutting production Delay of new projects implementation China steel production demonstrates lower growth rates Shale gas development • • Steam coal is substituted by shale gas Coal players need to focus more on met coal and not steam coal which at times re mined together– not always sustainable Costs escalation 3 4 4
    • Coking coal capacity additions outlook Russia Canada 17 36 18 10 31 24 2006 2012 2017 2006 2012 2017 Mongolia USA 62 36 64 21 25 Indonesia 8 2006 2012 2017 World Total +33% ROW 381 7 2 Australia 196 22 286 124 209 11 5 2 2006 2012 2017 142 2006 2012 2017 0 2006 2012 2017 2006 2012 2017 2006 2012 2017 6 Mozambique +37% 2 2006 2012 2017 Coking Coal Capacity Additions, 2012-17, mmt 0-5 5-10 10-20 20-30 >30 • Main exports’ growth will come from Australia (53 mmt) • New regions Mongolia and Mozambique unlikely to provide significant amount of coal to the market (15 and 5 mt respectively) Notes: 1) Ex-China Source: Severstal analysis 5
    • Global coking coal supply demand balance and capacity additions forecast 6
    • Mozambique & Mongolia – not so fast as expected! Mozambique Mongolia Current coal production (2012, mt) 2,1 21,0 Players in the region • Rio Tinto • Vale • ENRC • Beacon Hill • Nicondezi • • • • Existing bottlenecks • Infrastructure • Quality of coal • Africa risk • Rail infrastructure and power sources • High geopolitical risks • Rio Tinto has recently written off 3 bn. USD for investment in Riversdale • Anglo decided not to invest into Revuboe project • Most progress conducted by Vale • Tavan Tolgoi project has not progressed as originally expected • Infrastructure negotiations not materialized into concrete actions Key themes Sources: Severstal analysis Mongolian Mining Company Gobi Coal Erdenes TT South Gobi Coal 7
    • Global met coal demand is expected to weaken • Metallurgical coal consumption is expected to grow in line with the steel production • CAGR for metallurgical coal consumption is expected to be around 2% in the next decade Sources: Worldsteel, Severstal Strategic Marketing Department, 8
    • Why the price is not growing? Premium HCC, USD/t, FOB Premium HCC price $400 spot, FOB Australia contract, FOB Australia spot, FOB USA $300 2011 2012 Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul Jun May Apr Mar Feb Jan Dec Oct Sep Aug $100 Nov $200 2013 • The significant price decrease for HCC can be mainly explained by weak demand from Asia (mostly China) • In the current market environment significant number of US players had to idle their capacities Sources: CRU, Platts, Severstal Strategic Marketing Department, MySteel 9
    • Dramatic escalation of cash costs 2009 FOB USD/t 120 120 100 47 86 82 92 90 88 99 Ø 84 80 61 60 40 20 0 Mt 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 Ukraine Mongolia Venezuela Indonesia Canada New Zealand USA Colombia South Africa Mozambique Russia Poland Australia Czech Republic USD/t 2012 FOB 140 120 109 104 108 81 100 100 41 64 82 80 56 60 58 60 130 112 110 Ø 104 40 20 0 Mt 0 50 100 Sources: Severstal analysis 150 200 250 •Average Australian costs escalated 34% from 2009-2012 due to: -Labor increases -Australian dollar appreciation -Opex and Capex inflation -Depletion of existing mines • US costs pushed by producers’ shift from steam coal to HCC production • Wages increase • Existing quality coal seams depletion 300 10
    • Metallurgical coal – costs versus price correlation Price and OPEX (USD/t) Example - Australia 250 232 222 228 200 170 162 142 150 108 95 112 98 100 82 109 114 2010 2011 2012 76 62 50 56 0 2007 81 66 2008 2009 Prices Source: Example BHP, company analysis Costs Underground Costs Surface 11
    • Industry discussions and themes “…that means we would have to demonstrate to the government and to Erdenes Tavan Tolgoi that we would be a partner choice for them” Graeme Hancock, Chief Representative and President in Mongolia “…a lack of fiscal discipline and overproduction when prices rise from senior miners…” Ivan Glasenberg, Glencore CEO 12
    • Contents • Coking coal industry – global perspective • Russian coking coal industry • Severstal new coking coal projects update 13
    • Russian coal market overview (1/2) Major coking coal producing basins in Russia, 2012* Pechorsky basin Grade – Zh, GZhO, K Production – 10 mt Reserves: 7.2 bnt Yakutsky basin Grade – K, KZh, Zh Production – 8mt Reserves: 4.2 bnt Kuznetsky basin Grade – K, KS, KO, Zh, GZh, GZhO, G, TS, O Production – 47 mt Reserves: 51.5 bnt Mezhegei Basin • Russia has one of the largest world resources of coal concentrated in several basins • Main coal basin is Kuznetsky (accounting for 72% of coking coal production) • Mezhegei basin can become the next large coal production center in the following decade 14 *Reserves include coking and steam coal Sources: Severstal estimates and analysis, Rosinformugol
    • Russian coal market overview (2/2) Russian coking coal producers Yakutugol Production of coking coal by grade, 2012 73.9 Sibuglemet 11% Others 11% 70.8 68.3 12% 65.9 65.7 16% Vorkutaugol 11% 70.8 70.4 16% 62.1 56.9 20% 7% Kuzbassugol 3% 3% Prokopievskugol 4% Stroyservis Belon 9% Raspadskaya 2% 10% 21% 14% 4% 24% 29% 16% 2% 7% 8% Yuzhniy Kuzbass 8% 5% 11% 9% 5% KRU 2004 2005 2006 2007 2008 2009 2010 2011 2012 Uzhkuzbassugol K KS KO КSN Zh GZH GZHO ОS • The Russian coking coal market is consolidated – 6 of the largest producers have a 59% share in the total production • More than 65% of coking coal produced in Russia is attributed to vertically integrated steel producing companies • Low and mid volatile coals are expected to be in deficit in the upcoming years *Reserves include coking and steam coal Sources: Severstal estimates and analysis, Rosinformugol 15
    • Steel demand and coking coal production Russian coking coal production by destination*, mt Coking coal and convertor steel production in Russia*, mt 57,4 58,6 57,3 55,7 57,4 56,1 52,9 57,3 55,7 58,6 56,1 52,9 49,4 13,3 46,0 41,7 38,9 18,2 13,2 38,0 42,6 44,1 42,1 36,2 2006 2007 2008 Coking Coal Production 14,2 43,7 42,4 41,2 10,3 14,8 49,4 13,6 2009 2010 2011 Convertor Steel Production 2012 2006 2007 Export 2008 2009 39,2 2010 42,0 43,8 2011 2012 Domestic Russian coking coal production was historically in line with the steel production Sources: World steel, CRU, Rosinformugol, Severstal analysis 16
    • Key new Russian coking coal projects Project Operator Reserves (mt) Main coal grade Start of production* Zh Estimated production (mt)* 13,0 Elga Mechel 1760 Inaglinskaya mine, Inaglinsky open cut mine Colmar 120 Zh 3,0 2013 Elegest EPK 895 Zh, KZh 15,0 2018 Mezhegey Evraz 765 Zh 1,3 2014 Centralny Severstal 639 Zh 7,5 2018 Zhernovskaya - 1 NLMK 163 Zh, GZh 3,0 2016 S.D.Tihova Mine, Butovskaya Koks 154 Zh, KZh 3,0 2014 Sibirginskaya Yuzhny Kuzbass 90 OS 2,4 2015 Erunakovsky-8 YuzhKuzbass 85 Zh, GZh 2,0-3,0 2013 Sarbalinskaya OMK 45 KS, OS 2,5 2018 Usinskoe – 3 NLMK 227 Zh 4,5 2018 Usinskoe Severstal 621 2Zh 2,5 2018 Basin 2014 South-Yakutsk basin Ulug-Khem basin Kuznetsky basin Pechora basin Source: Company information, Rosinformugol Note: (*) Based on company information and estimations, press reports 17
    • Contents • Coking coal industry – global perspective • Russian coking coal industry • Severstal new coking coal projects update 18
    • Strong, Global, Integrated KARELSKY OKATYSH (RUSSIA) 10.4mt (reserves – 415.3mt) OLKON (RUSSIA) 4.7mt (reserves – 276.2mt) CHEREPOVETS STELL MILL (RUSSIA) 11.6mt – steel output Iron Ore Pellets Iron Ore Concentrate Crude Steel Capacity PBS COALS (US) 3.3mt (reserves – 77mt) Coking and Steam Coal DEARBORN (US) 2.1mt Moscow Crude Steel Capacity COLUMBUS (US) 3.1mt VORKUTAUGOL (RUSSIA) 8.0mt (reserves – 246.8mt) High-quality Crude Steel Capacity Coking and Steam Coal 2010 Crude steel production, mln tonnes Coal sales volumes, mln tonnes Iron ore sales volumes, mln tonnes1 Revenues, $ bln EBITDA(2), $ bln 2011 2012 14.7 11.7 13.8 12.8 2.9 15.3 10.6 14.8 15.8 3.6 15.1 10.5 15.2 14.1 2.1 Coking/Thermal Coal Iron Ore Steel Mill/DRI Plant Note: Numbers are presented for 2012 sales volumes, for steel – total capacity (1) consolidated volumes of pellets and concentrate (2) EBITDA represents profit / (loss) from operations plus depreciation and amortization of productive assets adjusted for gain / (loss) on disposals of property, plant and equipment and intangible assets 19
    • Usinskoye – Key Highlights THE PROJECT’S KEY PARAMETERS LOCATION • North Russia, Komi Republic COAL PROPERTIES • Hard mid-vol, grade 2Zh in the Russian classification, regarded as a premium coal grade, similar to the Vorkuta coals. The coking coal is relatively high-ash, average sulphur CAPACITY • Resources in the Russian classification – 621 mt • Planned annual capacity 2.0-2.5 mtpa of hard coking coal concentrate COST POSITION • Production costs estimated at $40-50/t exw PROJECT’S DEVELOPMENT • Overall CAPEX estimated at c. $0.9bn • Production anticipated to start in 2018 INFRASTRUCTURE • As the deposit is located close to Severstal’s legacy Vorkuta mines, no significant infrastructure needs to be constructed • The existing railway passes c. 5 km from the deposit OWNERSHIP • Severstal (100%) RUSSIA Komi Republic Syktyvkar Vorkutaugol and Usinskoye deposit 20
    • Tyva – Key Highlights THE PROJECT’S KEY PARAMETERS LOCATION • Russia, Southern Siberia, Republic of Tyva, 35 km to the south-west of the capital Kyzyl COAL PROPERTIES • Semi-hard high-vol, grade Zh in the Russian classification. The coking coal is low-ash, lowsulphur, average coal rank (Ro), has unique fluidity features CAPACITY • Resources in the Russian classification – 639 mt (C1+C2), JORC resources estimated at 565 mt • Planned annual capacity 7.5 mtpa of coking coal concentrate COST POSITION • Production costs estimated at $20-30/t PROJECT’S DEVELOPMENT • Overall CAPEX estimated at $1.2-1.5bn • Production anticipated to start in 2019 INFRASTRUCTURE • 401km railroad to the mainline Transsib needs to be built. The Russian Government has committed to construct 147 km and launched the construction in Jan’12, but later it was stopped • Power could be supplied from the existing transmission line or a new power plant may be built OWNERSHIP • Severstal (100%) RUSSIA JAPAN CHINA INDIA Ulug-Khem coal basin and Tsentralniy coalfield Kuragino Krasnoyarsk region Irkutsk region Altai Kyzyl Republic of Tyva Mongolia 21
    • Thank you for your attention 22
    • Russian steelmakers self sufficiency in coking coal Capacity, mt Self-sufficiency, % Severstal 5.3 97 MMK 3,3 44 EVRAZ 11,6 139 0 0 9,8 285 NLMK MECHEL 23