2. Overview
2
1. China Coal Market Lookout
2. 2014 Coking Coal Price Movement
3. 2014 Thermal Coal Price Movement
1.1 China’s coal market has been in depression for two years
1.2 End 2013 has seen high stockpile on ports
1.3 Sluggish Economy drag down coal demand in 2014
1.4 factors that play roles in coal price movement
2.1 Supply demand fundamentals
2.2 2014 price forecast
3.1 supply demand fundamentals
3.2 2014 price forecast
3. 3
Coal market running weak for 2 years
0
200
400
600
800
1000
1200 Centralized economy The ‘Golden Age’ Depression
1st wave of downturn
2nd wave of downturn
3rd wave
1st wave: ship charterers, middle-men loses profit
2nd wave: truck contractor, checkpoints, and mines loses
profit
3rd wave: free competition sets the tune
Linear correlation
• Since 2003 China has witnessed the ‘golden age’ of coal
trading thanks to the rapid economic growth, trade have
been flourishing and prices have been elevating. During
this period demand has always slightly exceeded supply.
• The ‘golden age’ is now history. Since 2012,
coal industry struggled in turbulence, price
kept dropping. 2014 will be spent in
another wave of downturn.
Fig 1-1 thermal coal price movement (FOB QHD 5500 RMB/t)
Source: Fenwei
4. 4
High stockpile drives prices low
0
100
200
300
400
500
600
700
800
900
1 000
threshold
• Inventory on Qinghuangdao (QHD) surged from 4.82 million tons (MT) of end 2013 to 8.42MT on
2nd Feb. From experience this is above threshold and prices will be driven down in due course
Fig 1-2 QHD stockpile (10,000t)
0
100
200
300
400
20140120
20140110
20131231
20131221
20131211
20131130
20131120
20131109
20131030
20131020
20131010
20130930
20130920
20130910
20130831
20130821
20130811
20130731
20130721
20130711
20130701
20130621
20130611
20130601
20130522
20130512
20130501
20130421
20130411
20130401
20130322
20130312
20130302
20130220
20130210
20130131
20130121
20130111
20130101
Fig 1-3 Jingtang old port stockpile (10,000t)
• Inventory on Jingtang port, north China’s largest coking coal terminal, is increasing
Source: Fenwei
5. 5
Trough
Fig 1-4 China quarterly GDP growth rate
Weakened economy dampens coal demand
• China’s GDP growth is on a 3-years slide and is expected to continue sliding through to 2014-15, as
China’s 2014 projected GDP growth at 7.5%. Periodicity can be seen in GDP growth per quarter from
below chart.
• During the golden age China’s coal consumption average elasticity is 0.75. Due to enactment
of strict environment regulation and the boom of renewable energy, we project coal
consumption elasticity in 2014 at 0.55, and demand growth stable at 4.1%.
6. 6
Factor Matrix
Basis Description Outcome
1 Macro
Economy
• Macro continues to gloom, expected GDP retracts
• Industry sectors remain unchanged, no significant sign of
recovery
• Downstream demand for coal (i.e. real
estate, electricity) stays flat
2 Policy • Tentative resource tax was tossed around but industry
had mixed opinion
• Shanxi, Shaanxi and Inner Mongolia introduces stimulus
package for coal sale
• Tax reform will be introduced in 2014
• Price volatility due to policy changes, lives of
small coal mine becomes more difficult
3 FAI • The golden age is history, decreasing margin means less
investment
• Previously invested coal mines enters the market。
• As production capacity increase, capital will
move on to find its next target
4 Transport • Multiple railways and highways under construction. As
they begins operation the transport bottleneck will be
eased in 2014
• Transport cost reduces on average, but long
distant transport will still be a large portion
of the cost
5 Safety • Spontaneous events • No long-term impact on prices
6 Cost • Cost will continue to reduce as producers strive to do so • About 5yuan/ton cos decrease in Shanxi
2014
7 Import • Policy will encourage import • Low cost, good quality make import ideal for
coastal areas of China
8 Energy
Sector
• Nat Gas, Coal Bed Methane will catch up in energy mix • Coal will dictate as primary energy source
7. Overview
7
1. China Coal Market Lookout
2. 2014 Coking Coal Price Movement
3. 2014 Thermal Coal Price Movement
1.1 China’s coal market has been in depression for two years
1.2 End 2013 has seen high stockpile on ports
1.3 Sluggish Economy drag down coal demand in 2014
1.4 factors that play roles in coal price movement
2.1 Supply demand fundamentals
2.2 2014 price forecast
3.1 supply demand fundamentals
3.2 2014 price forecast
8. 8
Demand Supply Fundamentals
• In 2013, China produced 476MT of coke,
equivalent to 620MT of coking coal
consumption.
• As China upgrades to a higher grade steel
furnace , blend ratio of strong-caking coal
increased to cope with relevant coke
requirement. in 2013, overall strong-
sticking coal blend ratio is 63%.
• We predict coke production in 2014 to be
505MT, correspond to 656MT of coking
coal. We also foresee the blend ratio for
strong-caking coal increase to 64%.
Source: Fenwei
4000
4200
4400
4600
4800
5000
5200
5400
5600
Jan Feb Mar April May June July Aug Sep Oct Nov Dec
2012 2013
10,000t
Fig 2-1 2012-13 China Coking Coal Consumption (104)
Table 1-1 2013 China Coking Coal blend ratio
JM FM SM QFM 1/3JM QM Other
Blend Ratio 33% 10.8% 6.5% 6.8% 19% 16% 6.9%
Consumption
(104)
20550 6725 4048 4234 11832 9964 4682
Source: Fenwei
9. 9
Demand Supply Fundamentals
Fig 2-2 2008-13 Coking Coal Production by sub-category (104)
• In 2013, China’s coking coal production totaled 564MT, calculated by raw production per sub-class,
wash rate and yield rate. Amongst this, Shanxi province alone has produced 177MT, or 31.37%.
• In 2014, China’s output capacity will witness another year of rapid increase as new mines enter
production. Fenwei predicts a 60MT capacity increase in 2014, reaching 1.59 billion overall. Raw
production will reach 1.49 billion and refined coking coal production estimated at 576MT, or 2%
increase.
Source: Fenwei, Bureau of coal safety
44712 44773
48955
53861 54671 56463
0
10000
20000
30000
40000
50000
60000
2008年 2009年 2010年 2011年 2012年 2013年
PSM SM JM FM 1/3 JM QF coal QM Total
10. 10
Demand Supply Fundamentals
Table 1-2 2009-13 Coking Coal export and import (104)
• China is now a net importer of coking coal. In
2013, the import number is 75.4MT, meaning
a y-o-y increase of 40.78%. This is much
higher than the CAGR of 21.59% over the
previous 4 years.
• Export however is suppressed. 2013 has seen
1MT of export, leveled with the 2012 number
but lowered from 2011’s 3.59MT.
• In complement of ample supply of weak-
caking coal, China is importing an increasing
volume of strong-caking coal. As domestic
supply of strong-caking coal remain
shorthanded, this trend is expected to
continue, with net import reaching around
95MT or 28% increase in 2014.
Year 2009 2010 2011 2012 2013
Import 3449 4727 4466 5355 7539
Export 64 114 359 131 109
Fig 1-2 2013 China coking coal import by country
Fig 1-3 2013 China Coking coal export by country
Source: NBS
40%
20%
15%
11%
8%
4% 2%
Australia
Mongolia
Canada
Russia
USA
Indonesia
Others
41,25%
11,42%
47,02%
0,00% 0,31%
Japan
N. Korea
S. Korea
Canada
Russia
11. 11
Supply vs Demand
Table 1-3 2009-13 Coking Coal Supply vs Demand (108)
• In 2013, China’s coking coal supply exceeded 638MT, split between 88% of produced and 12%
imported. Demand reached 620MT. This suggests an slightly over-supply situation.
• As of 2014, because of newly operating mines, the supply is growing steadily whereas rate of demand
growth is losing speed. Our forecasted gap from its supply is 15MT.
Source: Fenwei
2009 2010 2011 2012 2013 2014E
Supply Side
Production 4.48 4.89 5.39 5.47 5.64 5.76
Net Import 0.334 0.459 0.414 0.527 0.739 0.95
Net availability 4.81 5.35 5.80 5.60 6.38 6.71
Demand Side 4.72 5.37 5.63 5.45 6.20 6.56
Margin 0.09 -0.02 0.17 0.15 0.18 0.15
13. Overview
13
1. China Coal Market Lookout
2. 2014 Coking Coal Price Movement
3. 2014 Thermal Coal Price Movement
1.1 China’s coal market has been in depression for two years
1.2 End 2013 has seen high stockpile on ports
1.3 Sluggish Economy drag down coal demand in 2014
1.4 factors that play roles in coal price movement
2.1 Supply demand fundamentals
2.2 2014 price forecast
3.1 supply demand fundamentals
3.2 2014 price forecast
14. 14
Demand Supply Fundamentals
Fig 3-1 2008-13 thermal coal consumption and growth (108)
• China’s thermal coal consumption has
increased from 2008 with CAGR 9.5%.
• In 2013, China’s thermal coal consumption is
3.42BT. Share of electricity is 61%. Building
material usage decreased by 1% to 22%. Civil
use is also on the down side.
• As economic couldn’t rally in 2014,
especially with real estate industry rolling
downhill, coal consumption cannot sustain
current growth rate. We predict 2014
thermal coal consumption to be 3.54BT, or
3.5% y-o-y increase.
Fig 3-2 2013 coal consumption by industry
Source: Fenwei
Electricity
61%
Building
Material
22%
Chemical
5%
Metallurgy
4%
Others
8%
21,69
24,82
28,72
32,09
34,11 34,22
14,43% 15,71%
11,73%
6,29%
0,32%
0,00%
2,00%
4,00%
6,00%
8,00%
10,00%
12,00%
14,00%
16,00%
18,00%
0
5
10
15
20
25
30
35
40
2008 2009 2010 2011 2012 2013
Consumption Growth Rate
Source: Fenwei
16. 16
Demand Supply Fundamentals
Table 2-1 2009-13 thermal coal export/import (108)
• According to NBS, China imported thermal coal
252MT in 2013, up 6.8% y-o-y; exported
6.34MT, making China the net importer of
246MT throughout the year.
• China thermal coal import has been inclining
since 2009, with CAGR 29%.
• For policy reasons, China’s export has been on
the decline each year.
• Fenwei expect China’s GDP growth rate stables
at 7.5%, and net import volume up to 265MT.
Year 2009 2010 2011 2012 2013
Import 0.91 1.19 1.82 2.36 2.52
Export 0.22 0.18 0.11 0.08 0.06
5,3%
6,6%
5,3%
23,2%
7,6%
48,4%
3,6%
Fig 3-4 2013 China thermal coal import
42,9
%
42,1
%
14,0
%
1,0%
Fig 3-5 2013 China thermal coal export
Source: NBS
South Africa
N. Korea
Vietnam
Australia
Russia
Indonesia
Others
Japan
S. Korea
Taiwan
Others
17. 17
Supply vs Demand
Table 2-2 2008-13 thermal coal fundamentals (108)
• China’s total 2013 supply was 3.49BT with a 93% to 7% spread between domestic and import. Total demand
was 3.32 billion tons. It’s a slightly over-supplied situation.
• As of 2014, because of new mines were put in operation, the supply is growing steadily whereas rate of
demand growth is losing speed. Over-supplied situation will be the topic of 2014, with a 62MT margin.
Source: Fenwei
2008 2009 2010 2011 2012 2013 2014E
Supply side
Production 21.8 24.1 27.1 29.9 31.8 32.4 33.38
Net import -0.02 0.69 1.19 1.67 2.27 2.46 2.65
Net availability 21.78 24.79 28.29 31.57 34.07 34.86 36.03
Demand side 21.69 24.82 28.72 32.09 34.11 34.22 35.41
Margin 0.09 -0.03 -0.43 -0.52 -0.44 0.64 0.62
19. 19
About Fenwei
• Established in 1998, Fenwei is based in Taiyuan, Shanxi. Fenwei is China’s premier expert in coal, coke,
coal bed methane, coal chemical and other forms of energy.
• Consulting: tailored reports on investment valuation,
feasibility studies, market studies, and solutions etc.
• Information: China’s largest and quickest go-to
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outsource, wash plant outsource, mine outsource
etc.
• Reports: Weekly, monthly, yearly, tailored etc.
• Mine database: capacity, status, coal quality data on
more than 13,000 coal mines nationwide.
• Coal database: coal composition and coal seams data
Fenwei
Information Consulting Outsourcing
Databases
Analysis and
maths models
reports
20. 20
Coal quality
valuation
Market study and
consensus
Product design and
pricing
Marketing campaign
Our partners in Mongolia
• Quality inspection in
accordance to Chinese
quality convention
• Identify key strength
or weakness for the
coal just like how
Chinese buyers would
see them
• Study market value
and target market for
the coal
• Identify Potential
buyers, competitors,
and complementary
coal,
• Application of the coal
and investigate to
confirm our judgment
with market players
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• Selling point and price
range
• Transportation to
target market
• Facilities (e.g. wash
plant) requirement
• Take it to the market
with Fenwei's broad
connection and
experience in China.
Allow you to start a
dialogue directly with
end-buyers from day
one.
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