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Noble - Girish Koulgi -Trader’s Viewpoint
- 1. The International coal market in 2016-2017 Indian coal imports – have they scaled their peak yet ? Girish Koulgi – Director, Noble Resources, India March 2016
- 2. Coal Demand Outlook March 2016
- 3. MAR 20163 What to expect from China in 2016-2017 The same, but less of it • The Chinese market will remain weak in 2016, but some signs of stabilization have started to emerge • Chinese domestic prices have started to level off, as the government makes efforts to cut over-supply • Old mines have been shut in several provinces, and the government is managing the transition to control impact on employment • As a result, cost structures have improved as a result of better infrastructure (rail de- bottlenecking)Source: CCR
- 4. MAR 20164 What to expect from China in 2016-2017 The same, but less of it • Imports are expected to drop slightly YOY, reaching approximately 100 million tonnes (-20 to -30 million tonnes from 2015) • We expect monthly imports will remain in the 8-10 million tonnes per month range Slowing decline Source: CCR
- 5. MAR 20165 What to expect from China in 2016-2017 The same, but less of it • Demand pressure on coals with similar CV to the Chinese domestic material (i.e. 5500 NAR) • Preference for 4200 GAR Indonesian material to remain firm, as an ideal (and cheap) blend for high-sulphur Chinese coals • The sub-bituminous market is expected to decline to limited demand in a few coastal plants that cannot blend lignite 2014 Δ 2015 Δ 2016 Δ 2017 Coal Grade Bituminous 111 -45 66 -25 41 -7 34 Sub-bituminous 23 -6 18 -3 15 -2 13 Lignite 64 -16 48 -2 46 -2 44 Total 198 (66) 132 (30) 102 (11) 91 Source: Noble Research
- 6. MAR 20166 Northeast Asia (Ex-China) Fresh capacity coming • Japan: Capacity additions - plants below 150MW, which do not need environmental approval • Korea: New plants in 2016- Yeosu #1, Samcheok, Taean #9, #10, New Boryung • Taiwan: Linkou #1, Talin #1 • Hong Kong: Slight reduction in coal demand as a result of government policy on the energy mix 2014 Δ 2015 Δ 2016 Δ 2017 Country Japan 130 3 133 0 133 2 135 Korea 102 3 105 9 114 4 118 Taiwan 60 0 60 3 63 2 65 Hong Kong 14 -2 12 0 12 -1 11 Total 305 4 310 12 322 7 329 Source: Noble Research
- 7. MAR 20167 Southeast Asia Becoming a major player • Malaysia: Manjung 4 and Tanjung Bin 4 (2000 MW) • Thailand: NPS Chachoengsao plant • Philippines: Therma South (150 MW), San Rafael (300 MW), Pampanga (82 MW) • Vietnam: Lower domestic supply – increasing use of imports for blending. Strong pipeline of new coal-fired power plants in the Longer term. • Indonesia: domestic demand also increasing – 10-12 million tonnes growth in 2015 2014 Δ 2015 Δ 2016 Δ 2017 Country Malaysia 21 0 21 3 24 4 28 Thailand 20 0 20 2 22 2 24 Philippines 15 0 15 2 17 1 18 Vietnam 2 1 4 1 5 2 6 Other Pacific 6 1 7 2 9 2 10 Total 64 2 67 9 76 10 86 Source: Noble Research
- 8. MAR 20168 Atlantic Market Big losses in Europe • UK: coal imports collapse due to the increase in the carbon price floor to £18.08 per tonne of CO2; switching to gas • Continental Europe: Low prices for oil-linked Russian gas will increase pressure on coal in the mix • North America: Market supported by Mexico as a result of the expansion of the Petacalco power plant • Turkey: Commissioning of Ayas and Eren Enerji plants (1825 MW) in 2017 • Latin America: Growth from new power plants in Brazil and Chile 2014 Δ 2015 Δ 2016 Δ 2017 Region Europe 126 -8 118 -12 106 -7 100 Turkey and Med. 42 3 45 0 45 3 48 North America 16 2 18 1 19 2 21 Latin America 19 1 20 1 21 2 23 Total 203 (2) 201 (9) 192 0 192 Source: Noble Research
- 9. Will coal prices recover in the near future? How many mines in the money – 2012 v/s 2016 ? March 2016
- 10. MAR 201610 Cost Compression and Margins The proportion of producers making losses is not significantly different from 2012 Newcastle 2012 = $97 Seaborne Cash Costs 2012 Source: CRU, Noble Analysis
- 11. MAR 201611 Cost Compression and Margins Under current oil prices and FX, most high-CV origins can still make profits Newcastle spot = $50 Seaborne Cash Costs 2016 Source: CRU, Noble Analysis Seaborne cash costs have nearly halved between 2012 and Q1 2016 Australia, Russia and Colombia have been the big winners in the costs race
- 12. Supply – What is available at current levels? March 2016
- 13. MAR 201613 Supply How much coal is available at current prices? 2014 Δ 2015 Δ 2016 Δ 2017 Australia 198 2 200 2 202 2 204 Indonesia 422 -49 373 -18 355 -11 344 South Africa 71 4 75 1 76 0 76 Russia 97 1 98 0 98 2 100 Colombia 75 7 82 4 86 3 89 USA 32 -8 24 -8 16 -6 10 Other 80 -12 68 -7 61 -1 60 Total 943 (55) 896 (26) 878 (11) 873 • Australia: Pressure in the metallurgical market increases availability of thermal coal • Indonesia: Losing cost competitiveness as mines age and CV declines. A growing domestic market brings some relief to producers. • South Africa: Remains competitive and well placed –availability of RB1 becoming tighter, but RB2 and RB3 will remain robust • Colombia: Aggressive growth as coal chains are debottlenecked – costs are among the lowest in the seaborne market Source: Noble Research
- 14. The impact of India in the Supply/Demand Balance March 2016
- 15. MAR 201615 Imported Coal in India: Historical Fairy Tale – has it been fair enough ? • Rise coincided with industrial/economic growth • Domestic Production could not catch up entirely • Port infrastructure has grown the most in last 7-8 years • Complemented growth in Fe Ore exports as well • 2016 - domestic production up, demand slow and global oversupply - 20 40 60 80 100 120 140 160 180 2008 2009 2010 2011 2012 2013 2014 2015 2016 (e) 2017 (e) MillionMT Sector Wise Import Growth – Base case PSU/SEB Cement IPP/CPP Retail Source: Noble Research
- 16. MAR 201616 Energy v/s Volume The effect of freight on energy on volume • From 2011 to 2015, volumes grew @15-20% pa • In a low-freight market, cost of carrying is low • Delivered cost per heat value is low • Several medium to high CV users stepped down their CV requirements • Period coincided with massive growth in low CV production in Indonesia • Imports in MT grew @20%; but after energy adjustment, maybe only 10-12% • In 2014, imports from RSA grew ~40% Y-o-Y; but major contributor was non-RB1 product flow Import Volume Energy in Coal (NAR)
- 17. MAR 201617 Reversal or Plateau: Imported Coal Is it here to stay ? • With prices below 2008 (GFC), the trend is reversing • Global oversupply and slowing China demand • Power demand remains subdued • Power tariffs have weakened all over India • Power sector in India still reeling under accumulated losses at DISCOM level • Domestic coal availability at historic high • Investment climate in Power Sector not the same as few years ago • Serious competition from Renewable Energy Energy in Coal (NAR) Import Volume
- 18. MAR 201618 Question of Bandwidth Thinner is Better – really ? Market for Imported Coal – Structural Change ?
- 19. MAR 201619 Conclusion: Supply & Demand The effect of India on coal prices • Increasing probability of a weak Indian coal market in 2016 and 2017 • We estimate a drop in demand of -3 to -19 million tonnes in three demand cases to assess the potential impact of lost demand in India • In all cases the global coal market remains heavily oversupplied in 2016 (weak India just makes a bad situation worse) • In our two higher India cases, the market rebalances in 2017 • In our low India case, oversupply carries forward to 2018 India 2014 Δ 2015 Δ 2016 Δ 2017 Base 163 1 164 -16 148 -8 140 High 163 1 164 -9 155 -5 150 Low 163 1 164 -24 140 -10 130 Seaborne Demand 2014 Δ 2015 Δ 2016 Δ 2017 Base 933 -61 873 -34 839 -1 838 High 933 -61 873 -27 846 2 848 Low 933 -61 873 -42 831 -3 828 Supply 933 (60) 873 5 878 (5) 873 + = Oversupply 2014 Δ 2015 Δ 2016 Δ 2017 Base 0 1 0 39 39 -4 35 High 0 1 0 32 32 -7 25 Low 0 1 0 47 47 -2 45 Source: Noble Research