Outlook for the coke market in 2010 & onward [Met Coke 2009]


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- Market prices for different coke grades
- Coke battery closures in 2008-9 and their future impact on the market
- Future Chinese policy on exports
- Coke demand outlook
Andrew Jones, Analyst, RESOURCE-NET, Belgium

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Outlook for the coke market in 2010 & onward [Met Coke 2009]

  1. 1. “Outlook for Coke Market in 2010 & Beyond” Andrew Jones Resource-Net Brussels, Belgium Intertech-Pira’s Met Coke World Summit Pittsburgh, USA October 2009 www.resource-net.com
  2. 2. Comments on Coke MarketIn the first half, demand issues took centre stage as the next slide shows; world iron output declined from ~1bn tonnes annualized in middle of 2008 to <0.8bn tonnes at year-end. However, by August annualized output had recovered to 962m tonnes.Coke prices on “fob China basis” have lost their value as the main benchmark for the world market. The 40% export tax levied by the government since August 2008 makes transactions unworkable. Current indications are at $400/tonne fob for BF coke, compared to Indian import price of around $300/tonne cfr. There is a belief in the market that the tax will remain in place until the end of the year, maybe longer.Supply continues from other sources in line with market demand e.g. Poland, Russia, Ukraine, Colombia, Japan etc. Note that most of these sources primarily supply the western hemisphere, whereas most demand is in eastern hemisphere…However, we will show that if Chinese coke continues to be kept from the market, there will be a market shortage from 2011. Difficult to see how supply from these other sources could fill the gap.Adding to market tightness will be around 10m tpy of permanent coke capacity closures enforced by the economic crisis of the last two years. www.resource-net.com
  3. 3. World Iron Output &Commodity Markets www.resource-net.com
  4. 4. Global Annualized Pig Iron Output Data Ø Annualized world iron output collapsed from >1bn tonnes in mid 2008 to 762m tonnes in December; followed by recovery in 2009. By August, iron output was 962m tonnes, almost at “pre-crisis” level. Ø Increases in most regions of the world over the past six months. In Europe and N America, there were blast furnace restarts from around July onwards. Ø In the first half of 2009, China was the main “engine” of the growth, but its output was stable in August from the previous month. www.resource-net.com
  5. 5. Iron Output by World Region Ø This chart shows iron production for the major producing regions over the past three quarters. Ø There have been moderate increases in all regions in the third quarter (estimated from July & August). Ø The decline in iron output this year have had a severe impact on the markets for coke, especially as conventional coke batteries cannot be allowed to go cold as blast furnaces can be; this led to sizeable stock builds of coke in the first half of the year, when approximately 40-45% of blast furnaces in Europe were idle. www.resource-net.com
  6. 6. Pricing for Coke Indexed vsSteel & Other Raw Materials – 2008-09 Ø Following catastrophic declines in the second half of 2008, most commodity markets have seen some recovery this year, oil especially. Ø In last few weeks, some evidence of slowdown in market, prices flattening out. Ø As has been typical in recent years, the freight market has been extremely volatile, peaking in June cooling off thereafter. Ø Coke - EU price is shown - lagged coal and steel markets until recently... www.resource-net.com
  7. 7. Coke Pricing & Trade www.resource-net.com
  8. 8. Chinese Coke Price vs Exports Annual coke exports from China maintained at 14-15m tonnes after 2000. 12% ash coke price averaged $556/tonne in 2008, double the previous year’s level. Exports declined to 12.1m tonnes. www.resource-net.com
  9. 9. Blast Furnace Coke Pricing Ø Due to 40% export tax applied from August 2008, pricing from China is uncompetitive in world markets. Exports were just 230,000 tonnes in the first half 2009. Ø On a nominal basis, Chinese export price was more than $400/tonne fob in the first half of the year. Ø There is a current mismatch between Chinese export prices and indications from other regions, as shown in the chart. Ø Price indications are sourced each month directly from traders active in the market. www.resource-net.com
  10. 10. Key World Coke Exporters Ø The 40% export tax is making trade in Chinese coke unworkable for most countries, hence there will be radical decline in its exports in 2009. Ø Declines from other major coke- exporting countries this year - except Japan. Absence of Chinese coke has created new opportunities in Asia, including 75,000 tonnes to China from March to July… Ø Poland: mainly supplies other European countries, though sales to India, Iran and Pakistan start in last two years. Ø Colombia: traditional markets in Latin & North America, but also supplies Europe and India. Ø CIS (Russia & Ukraine): becoming important suppliers to Middle East & India in absence of Chinese coke. www.resource-net.com
  11. 11. Cross-Border Trade in Coke by World Region Coke Imports, million tonnes (As % of Demand) 2005 2006 2007 2008 2009 (e)Europe 11.1 (21%) 12.3 (23%) 12.5 (23%) 12.0 (23%) 6.3 (19%)CIS (fmr Soviet Union) 2.0 (4%) 2.2 (4%) 3.4 (6%) 2.7 (6%) 1.1 (3%)North America 3.8 (16%) 4.2 (18%) 3.0 (13%) 5.0 (21%) 0.9 (7%)Latin America 2.1 (19%) 1.9 (16%) 2.2 (17%) 2.6 (19%) 0.6 (6%)Sub-Saharan Africa 0.4 (14%) 0.4 (12%) 0.6 (16%) 0.5 (15%) 0.3 (11%)Maghreb & Middle East 1.2 (18%) 1.3 (18%) 1.2 (18%) 1.2 (19%) 1.0 (20%)Asia 5.8 (2%) 7.4 (2%) 8.8 (2%) 5.5 (1%) 3.0 (1%)Australia 0.1 (2%) 0.0 (-) 0.1 (3%) 0.1 (3%) 0.0 (-)Total – a 26.5 (6%) 29.5 (6%) 31.8 (6%) 29.6 (6%) 13.1 (3%)a – from all sources, including countries within the region. www.resource-net.com
  12. 12. Coke versus Coal Pricing – By Quarter from 2006 Ø Charts shows coke prices (Indian) plotted against hard coking coal price. Ø It seems as if coke price has become “leading indicator” of the direction of the hard coking coal price. Ø Rise in coke price in current quarter to $300/tonne cfr indicates some kind of balance against contract hard coking price. Ø However, spot coking prices have risen to $155-165/tonne in August. www.resource-net.com
  13. 13. Coke Production & Capacity Outlook www.resource-net.com
  14. 14. World Coke Output versus Ratio to Iron Output Rise in coke / iron ratio in 2009 to 0.60 indicating over-production of coke – but mostly in China. www.resource-net.com
  15. 15. Coke Production by Region Ø World coke production has become increasingly dominated by Asia, and in particular China, over the past decade. Ø Asian coke production more than doubled from 1998 to 2008. Ø In contrast, European coke production has fallen by 18% over the same period. In North America, it has declined by 22% using the same comparison. Ø The Fmr Soviet Union (CIS) has also seen some increase in coke production, up by 29% over the past ten years. www.resource-net.com
  16. 16. Coke Capacity DevelopmentsCountry Capacity, M tpy Increase in Capacity Developements over Five 2003 2008 YearsEurope 54.0 58.0 +4.0 Programme of battery rebuilds ongoing in Poland, as well as Bosnia, Czech Rep, Germany and Hungary HKM expansion postponed again in 2009. . Permanent closures in Bulgaria, Czech Rep, Poland and Romania in 2008-09.FSU / CIS 66.8 69.5 +2.7 Many new and replacement batteries in Russia and Ukraine. Novolipetsk Steel closed four batteries in 2008-09.North America 22.8 23.6 +0.8 Sun Coke built 0.5m tpy plant at Haverhill in 2005, doubled in 2008. Also, projects at Middletown and Granite City. Indianapolis Coke closed in 2007.Latin America 10.6 14.6 +4.0 In Brazil, Sun Coke completed plant at CST in 2007. There are also projects at Acominas (complete) and Usiminas. Tentative expansion plans in Colombia from 2010 onwards.Africa 3.3 4.1 +0.7 ArcelorMittal built 0.5m tpy battery in 2006 to supply ferrochrome market. Coke plant completed in Zimbabwe end of 2009.Maghreb & 7.4 9.0 +1.6 New plant in Iran completed in 2008. In Turkey, Isdemir restarted some cokeMiddle East capacity in 2007.Asia 295.0 494.9 +199.9 China accounts for most new capacity. India has also added batteries though many are not cost-effective because of coal cost and availability. Tata started 1.6m tpy plant in 2007-08 in West Bengal. In addition, there have been expansions in Japan and Korea.Australia 3.5 3.5 0.0 No new investments in capacity.Total 463.5 677.2 +213.7 Outside China, net change in world coke capacity is 22.7m tonnes. www.resource-net.com
  17. 17. Known Permanent Coke Battery Closures 2008-09Location Total, M tpyKremikovtzi, Bulgaria All operations stopped indefinitely October 2008. 1.42OKK Sverma , Czech Rep One battery (#3) closed in Q3, #4 to stay open. 0.34ZKS, Carling, France No buyer found for plant by end of August deadline, hence 0.85 closure is probably imminent.ISD Polska, Czestochowa, One of two batteries closed in May 2009. 0.32PolandArcelorMittal, Krakow, Two of three batteries closed. 0.75PolandArcelorMittal, Zdzieszowice, Two batteries (#1 and #2) closed in 2009. 0.60PolandArcelorMittal, Galati, Five remaining batteries closed in June & July 2009. Coke 2.26Romania will be sourced from Poland.Novolipetsk, Russia Two batteries were closed in October 2008, two more in 2.46 February 2009.Zapsib, Novokuznetsk, Russia One battery closed permanently in 2009. 0.65Total 9.65 www.resource-net.com
  18. 18. Summary &Conclusions www.resource-net.com
  19. 19. Historical & Forecast Demandfor Cross-Border Traded Coke Line indicates expected future export potential for coke from major exporters, assuming Chinese exports limited to 1m tpy. www.resource-net.com
  20. 20. Reasons Why Coke Likely to Remain in Short SupplyBelief in the market that China will not reduce the 40% tax on coke exports in the near future, despite diplomatic pressure from the EU and the US; the China Coke Association indicates that it will not be in 2009. Once demand for cross-border coke trade returns to historical level of around 30m tpy (by 2012?), it is impossible to see how other countries can compensate for the loss of China’s 14m tpy export capacity.Permanent closures in 2008-09 of coke capacity totaling almost 10m tpy at nine sites mainly in eastern Europe, largely enforced by the market collapse (total world capacity outside China = 272m tpy end 2008). This will lead to a reduction in coke export capacity from Poland and Czech Republic, two main suppliers of merchant coke to the rest of Europe. Also, in early 2009 the HKM coke plant expansion (1.1m tpy) in Germany was postponed for a second time. (Other projects in Japan, Korea and US still proceeding.)Start-ups in 2009-10 of blast furnace capacity in Asia with no associated coke plants e.g. Ann Joo in Malaysia, Tata Steel in Thailand (both 0.5m tpy), Dragon Steel in Taiwan (2.5m tpy) (to be supplied by parent company China Steel?). Adds to large merchant demand in India for merchant pig iron, ferroalloys and soda ash production. www.resource-net.com