International steam coal market outlook

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Objective Capital's Industrial Metals, Minerals & Investment Summit 2010
London Chamber of Commerce and Industry
3 November 2010
Speaker: David Price

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International steam coal market outlook

  1. 1. INDUSTRIAL METALS, MINERALS AND MINEABLE ENERGY INVESTMENT SUMMIT 2010 LONDON CHAMBER OF COMMERCE & INDUSTRY ● WEDNESDAY, 30 NOV 2010 www.ObjectiveCapitalConferences.com 1 International steam coal market outlook David Price – Steam Coal Advisory Service
  2. 2. The international steam coal market outlook November 3, 2010 • London CONFIDENTIAL © 2010, All rights reserved, IHS CERA Inc., 55 Cambridge Parkway, Cambridge, Massachusetts 02142 No portion of this presentation may be reproduced, reused or otherwise distributed in any form without prior written consent.
  3. 3. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. • IHS CERA content and information, including but not limited to graphs, charts, tables, figures, and data, are not to be disseminated outside of a client organization to any third party, including a client’s customers, financial institutions, consultants, or the public. • Content distributed within the client organization must display IHS CERA’s legal notices and attributions of authorship. 3 Terms of Use The accompanying materials were prepared by IHS CERA Inc. and are not to be redistributed or reused in any manner without prior written consent, with the exception of client internal distribution as described below. IHS CERA strives to be supportive of client internal distribution of IHS CERA content but requires that Some information supplied by IHS CERA may be obtained from sources that IHS CERA believes to be reliable but are in no way warranted by IHS CERA as to accuracy or completeness. Absent a specific agreement to the contrary, IHS CERA has no obligation to update any content or information provided to a client. IHS_CERA_GSC_RT_London_101510
  4. 4. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Major Import Stories in 2010–15 Importer 2008 2009 2010 2011 2012 2013 2014 2015 Germany 31 28 29 30 32 32 32 32 United Kingdom 37 31 19 25 24 23 22 21 Italy 19 16 17 18 18 18 19 20 Spain 17 14 8 7 7 7 7 7 Europe 191 175 164 176 175 174 177 178 USA 29 19 15 13 15 17 19 20 China 15 62 97 107 110 114 118 122 India 36 60 75 90 95 100 110 117 Total Asia 369 423 489 517 527 541 567 584 World 606 636 688 730 745 763 797 817 4 Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  5. 5. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Short-term Atlantic Fundamentals: The Market Wakes Up? • Scandinavian hydro—still weak. — A poor hydro year normally means a period of stronger coal demand in Denmark and Finland — Danish stocks ended summer very low — Buyers should be in the market already • UK stockdraw should end this winter. — Falling utility stocks going into winter but… — Late and short shoulder months this autumn and rising local production — Even so, 2011 should see imports back in growth • Spain—mining support law may change things. — Support for domestic mines offers support to power stations using international coals as well • United States—still caught up in the shale gale. • But will the supply be there when things turn up? 5 IHS_CERA_GSC_RT_London_101510
  6. 6. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 6 Norwegian Hydro Reserves—Weak Going into Autumn 20 30 40 50 60 70 80 90 100 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 Percent Weeks 2008 2009 2006 2007 2010 Source: Nordpool Source: Nordpool. IHS_CERA_GSC_RT_London_101510
  7. 7. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 7 Danish Power Station Coal Stocks 0 1,000 2,000 3,000 4,000 5,000 6,000 Thousand Tons Source: Danish Energy Agency Source: Danish Energy Agency. IHS_CERA_GSC_RT_London_101510
  8. 8. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 8 UK Electricity Supply Industry Coal- burn 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Thousand Tons 2005 2006 2008 2009 2007 2010 Source: DECC. IHS_CERA_GSC_RT_London_101510
  9. 9. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 9 UK Utility Stocks 0 5 10 15 20 25 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Million Tons Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  10. 10. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 10 United Kingdom’s Seaborne Import Trends (End Year) 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Thousand Tons 2008 2009 2010 2009 Smoothed 2010 Smoothed Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  11. 11. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. UK Mining Capacity Is Stabilizing • UK coal investment program is complete. — Daw Mill. Output of 3–3.5 million metric tons (mt) in 2011, against 2.9 mt in 2009 and a probable 2–2.5 mt in 2010 — Kellingley. Now working Beeston seam, boosting production to over 2mt per year, from 1.0 mt in 2009 and estimated 1.5–2.0 mt in 2010 — Thoresby. Now in the Deep Soft seam, raising output from second quarter 2010 to 1.6–2.0 met per year. Output in 2009 was 0.8 mt and 2010 expected at 1.5 mt • Other deep mines are steady. — Hatfield on course for 0.5 mt per year — Maltby at just over 1 mt per year, should aim for 1.5 mt per year • Surface mining stable at c. 10 mt per year—could rise another 0.5 mt per year. • Overall 2011 output to rise by 1 mt per year in 2011 and then stabilize. 11 IHS_CERA_GSC_RT_London_101510
  12. 12. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 12 Spanish Hydro Reserves—The Highest since 2004 20 30 40 50 60 70 80 90 J F M A M J J A S O N D Percent 2005 2006 2008 2009 2010 2007 Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  13. 13. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Where Is There Growth in Europe? • Germany—Local mine displacement to continue to 2018. — New nuke provisions could squeeze coal-burn into 2020s • Italy—Power station construction continuing. • United Kingdom/Poland—Local mines have a better chance but each closure offers room for imports. • Turkey—Potentially massive power station construction on the way. • Morocco—Jorf 2 looks a strong possibility. 13 IHS_CERA_GSC_RT_London_101510
  14. 14. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. The US Is a Demand Story Today • Henry Hub prices remain low, so gas-burn should stay high. • Stockdraw needs to continue into 2011. • Buyers don’t need to buy. 14 0 2 4 6 8 10 12 14 16 Jan-05 Apr-07 Jul-09 Oct-11 Jan-14 The Henry Hub Outlook is Weak (US dollars per MMBtu) Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  15. 15. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 15 US Generator Stocks 40,000 50,000 60,000 70,000 80,000 90,000 100,000 110,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Thousand Short Tons 2005 2008 2006 2009 2007 2010 Source: EIA. IHS_CERA_GSC_RT_London_101510
  16. 16. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. But the United States Could Be a Supply Story Soon • Environmental regulation of mining will damage Appalachian output—estimates vary from tens to hundreds of millions of tons. — Mine permits extremely difficult to win — Limited effect so far but expected to hit hard soon • MSHA is squeezing the deep mines. — Protests and law suits but the wind is clearly blowing towards more regulation and spot inspections — Underground costs expected to rise • MetCoal qualifications are widening. — Pittsburg seam coals that were once too high in sulphur are being gobbled up by Asian buyers — US utilities being forced to buy elsewhere • If the market picks up, where is the supply? 16 IHS_CERA_GSC_RT_London_101510
  17. 17. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 17 Monthly US Production (All Coal) Source: DoE. 80 85 90 95 100 105 110 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Million ShortTons 2008 2009 2010 2009 Smoothed 2010 Smoothed IHS_CERA_GSC_RT_London_101510
  18. 18. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. China, India, and the Rest of Asia Today • Chinese import growth—40–45 mt banked by midyear, but some of the gains lost second half—2011? — New arrivals from Colombia and Venezuela complement huge growth in arrivals from Indonesia, Russia and South Africa — Massive production growth • India—20 mt plus in 2009, same again this year? — This is happening before ultra-mega power projects have any effect • Malaysia—bad reaction to 2008 prices in 2009, back with a bang this year (+3 mt) • Korea—still powering on (another 4 mt growth). • Taiwan—recessionary slump in 2009, recovery in 2010 (+4 mt). • More to come from all in 2011. 18 IHS_CERA_GSC_RT_London_101510
  19. 19. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 19 China’s Imports: Staying at 5–10 mt per Month? Thousand Tons Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  20. 20. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 20 Chinese Raw Coal Production Million Tons Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  21. 21. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. China’s Massive Surge in Production • Explanation 1—the amalgamation of mines. — Low productive small mines have gone — Amalgamations have provided a fleet of large and more efficient mines — Therefore production has boomed • Explanation 2—the amalgamation of mines. — In the past only 95 percent of output was counted because so much illegal/unlicensed mining was going on — Now 100 percent of mining is being counted, so a step-change is going on 21 IHS_CERA_GSC_RT_London_101510
  22. 22. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 22 The Main Chinese Coal Producing Areas: The West Takes over? dffdsdf Thousand Tons Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  23. 23. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. China Is a Price Play—but a Permanent Feature? • China’s emergence was clearly a response to price and infrastructure. • But quality is important as well now. • And are the prices enmeshed? 23 Source: IHS CERA. NB: Australian prices are for Newcastle quality material. All prices basis 5,500kc NAR. 0 2 4 6 8 10 12 0 50 100 150 200 250 Jan-08 Jan-09 Jan-10 Chinese Domestic versus Australian Prices Chinese Domestic Price Australian Delivered Price Imports US Dollars per Ton IHS_CERA_GSC_RT_London_101510
  24. 24. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. 24 India’s Massive Import Acceleration (million tons) Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  25. 25. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. The Asian Import Stories (mt) Importer 2008 2009 2010 2011 2012 2013 2014 2015 China 15 62 97 107 110 114 118 122 India 36 60 75 90 95 100 110 117 Korea 77 83 87 87 87 88 93 94 Taiwan 60 49 53 55 56 56 58 59 Japan 124 108 111 109 107 107 107 107 SE Asia 52 55 59 62 65 69 72 78 Total Asia 369 423 489 517 527 541 567 584 25 Source: IHS CERA. IHS_CERA_GSC_RT_London_101510
  26. 26. © 2010, IHS CERA Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent. Supply Issues for the Next Five Years • Massive focus on the East—to continue — Everybody investing in Indonesia, China, and Mongolia — Indians investing in South Africa — Indonesia and Australia should be the main trade beneficiaries. • Falling freights — Oversupply of ships to depress the market through the early 2010s — Makes cross basin trades easier (good for the Colombians if they can get the CIF differential down) • Costs—going up — Fuel costs and higher stripping ratios in Indonesia — Labour and transport in South Africa — Transport and taxes in Australia • Bottlenecks to ease slowly in Queensland and South Africa 26 IHS_CERA_GSC_RT_London_101510
  27. 27. For more information about this presentation or IHS CERA in general, please contact David Price +1 44 (0) 203 159 3409 David.price@ihs.com 55 Cambridge Parkway Cambridge, Massachusetts 02142, USA IHSCERA.com BeijingSan Francisco Washington, DC Cambridge, MA Calgary Mexico City Rio de Janeiro Paris Moscow Dubai Singapore Houston Denver London

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