Dr Neil J. Bristow Presentation at 7 th EuroCoke Summit Conference - - PowerPoint PPT Presentation

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Dr Neil J. Bristow Presentation at 7 th EuroCoke Summit Conference - - PowerPoint PPT Presentation

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Dr Neil J. Bristow Presentation at 7 th EuroCoke Summit Conference Barcelona, Spain 25 th 27 th April 2016 H & W Worldwide Consulting neil.j.bristow@hwworldwideconsult.com +61249149377 Introduction setting the scene 1. Snapshot

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SLIDE 1

Dr Neil J. Bristow

Presentation at 7th EuroCoke Summit Conference Barcelona, Spain 25th – 27th April 2016

H & W Worldwide Consulting

neil.j.bristow@hwworldwideconsult.com +61249149377

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SLIDE 2

1. Introduction – setting the scene 2. Snapshot – conditions Coke meeting Pittsburgh 3. Outlook today – what has changed and why 4. Australia’s role in the met coal and coke market 5. Looking ahead Australia in 2020 6. Long term future, where will we be in 50 years? 7. Concluding remarks

H & W Worldwide Consulting

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SLIDE 3

1. Introduction – setting the scene 2. Snapshot – conditions Coke meeting Pittsburgh 3. Outlook today – what has changed and why 4. Australia’s role in the met coal and coke market 5. Looking ahead Australia in 2020 6. Long term future, where will we be in 50 years? 7. Concluding remarks

H & W Worldwide Consulting

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SLIDE 4
  • It’s a China story stupid – or is it?
  • Is high coke strength the key factor anymore?
  • Are Chinese steel exports here to stay?
  • The commodity cycle has ended – or has it?
  • Do we need any more met coal and if so..
  • Who’s investing in new coking coal?
  • When does scrap/EAF replace the coke/BF?
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SLIDE 5

1. Introduction – setting the scene 2. Snapshot – conditions Coke meeting Pittsburgh 3. Outlook today – what has changed and why 4. Australia’s role in the met coal and coke market 5. Looking ahead Australia in 2020 6. Long term future, where will we be in 50 years? 7. Concluding remarks

H & W Worldwide Consulting

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SLIDE 6
  • In a nutshell = really bad!!
  • Macroeconomic conditions deteriorating fast
  • Falling demand for steel and coke, met coal
  • “flood” of Chinese steel exports
  • Prices heading south:
  • benchmark US$81.5 / spot US$78 – heading down
  • Industry unprofitable – severe cost reductions
  • Mine closures, across all major supply centres
  • Outlook for 2016 - bleak
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SLIDE 7
  • Prices – heading down
  • Widening differentials
  • PCI weakening
  • Demand softening
  • Steel demand
  • Chinese steel exports replacing imported coking coal steel
  • Chinese imports sharply lower 2.5Mt vs >4Mt in 2014
  • Supply – mines closing as unprofitable
  • Australia – Isaac Plains, Integra, Wollongong coal, Crinum 1/1/16
  • Canada – Grande Cache, Teck lowering volumes
  • US – entering Chapter 11

HQHCC HCC

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SLIDE 8

~20% 3 8 % In the near term further cost cutting is underway and could reach iron ore levels, adding to further US met coal problems. Could this even lead to increased met coal imports to keep coke plants operating?

H & W Worldwide Consulting

Slide from October 2015 Unfortunately I was right it did!!

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SLIDE 9
  • Prices – steelmaking raw materials heading down further
  • Bottom November 2015; met coal US$73/t PHCC, IO US$38/t
  • Steel forecasts down – change in China view, 2015 turning point
  • Chinese Demand – peak steel now softening?
  • 2015 entry China toward 1bt, exit, peaked ~820mt!!
slide-10
SLIDE 10
  • Prices – steelmaking raw materials heading down
slide-11
SLIDE 11
  • 5%
  • 8%
  • 11%
  • 13%
  • 17%
  • 18%
  • 20%
  • 20%
  • 22%
  • 24%
  • 26%
  • 31%
  • 37%
  • 40%
  • 35%
  • 30%
  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0%

Lead Gold Aluminium Tin Zinc Copper Thermal Coal Steel Iron Ore Platinum Uranium Nickel Hard Coking Coal 2016 average price vs LR price expectations

6%

  • 3% -

3%

  • 8% -

8%

  • 10%
  • 13%
  • 13%
  • 16%
  • 16%
  • 18%
  • 19%
  • 23%
  • 25%
  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10%

Zinc Gold Copper Tin Nickel Lead Iron Ore Uranium Thermal Coal Platinum Aluminium Hard Coking Coal Steel

2020 average price vs LR price expectations

Source: Macquarie bank, consensus forecasts, Bloomberg

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SLIDE 12

50 100 150 200 250 3,000 5,000 7,000 9,000 11,000 13,000 kg per capita GDP per capita (PPP 2005 Int dollar)

Global crude steel consumption

1950

  • 2013

2014E

  • 2019F

China takes off Collapse of the USSR Oil price shocks Global financial crisis

20 40 60 80 100 120 140

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F

million tonnes Chinese steel exports, crude steel basis

Source: Macquarie bank

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SLIDE 13
  • 80
  • 60
  • 40
  • 20

20 40 60 80 100 120

Changes in Steel production (MT)

Asia Europe North America

  • 100
  • 50

50 100 150 200 250 300 350 400

Steel Production Growth (Mt)

Asia Europe North America Middle East

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SLIDE 14

12 2 1

  • 3
  • 10
  • 5

5 10 15 20 India Korea Taiwan Other Brazil Europe Japan Million tonnes

2015 - 2020 forecast growth in seaborne met coal demand growth ex China

Source: Macquarie bank

Downward revision 8Mt during 2015 Downward revision 2Mt during 2015 Downward revision 1Mt during 2015

Total downward revision 14Mt during 2015

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SLIDE 15

20 40 60 80 100 120 140 160 50 100 150 200 250

FOB Cost ($/t)

  • HCC equivalent

Volume (mt)

2016 met coal cost curve

USA Canada BMA Russia Indonesia Australia Mozambique China Other

Spot price Quarterly contract

Source: Macquarie bank , H&W Worldwideconsulting

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SLIDE 16
  • In a nutshell = really bad!!
  • Outlook forecast to deteriorate in 2016
  • No improvement for a “number” of years
  • China steel lower future,
  • Exports continued threat to global steel
  • Met coal in “significant” oversupply
  • and haven’t even mentioned India and others

impacted by large volumes of cheap Chinese coke!

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SLIDE 17

1. Introduction – setting the scene 2. Snapshot – conditions Coke meeting Pittsburgh 3. Outlook today – what has changed and why 4. Australia’s role in the met coal and coke market 5. Looking ahead Australia in 2020 6. Long term future, where will we be in 50 years? 7. Concluding remarks

H & W Worldwide Consulting

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SLIDE 18
  • Prices US$97/t PHCC +US$24/t from lows November

PHCC (fob) Premium JM25 (cfr)

  • Prices predicted to “breakthrough” US$100/t
  • Rise in benchmark to US$84/t and PCI % up to 87% HCC

Source: Macquarie bank

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SLIDE 19
  • Real estate market started to pick up
  • New starts increased strongly into 2016
  • Steel recovery as construction ~60% of steel demand
  • Strong recovery in steel prices

Source: Morgan Stanley

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SLIDE 20

500 1,000 1,500 2,000 2,500 3,000

New Rmb loans, Rmb bn

China new loans

2013 2014 2015 2016

Source: Macquarie bank, NBS

  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 20% 25% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

demand

"Real" demand (i.e after stock changes) Apparent Consumption

Change in real & apparent consumption

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SLIDE 21

10 20 30 40 50 60 70 80 90 100 Jul - 11 Jan - 12 Jul - 12 Jan - 13 Jul - 13 Jan - 14 Jul

  • 14

Jan - 15 Jul

  • 15

Jan - 16

How do you expect steel production to change over the next month

Total Large Mills (>10mtpa) Medium Mills (5 - 10mtpa) Small Mills (<5mtpa) Increasing expectations of rising production Increasing expectations of falling production

Source: Macquarie bank

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SLIDE 22

600 620 640 660 680 700 720 740

March April May June July August September October November December January February March

Chinese pig iron annualised production (Mt)

100 110 120 130 140 150 160 170

Chinese coke price (Tanshan spot US$)

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SLIDE 23
  • Effect potentially increasing Q2 as further mines idled on

safety and coal production adjustments = more imports?

60 40 20 20 40 60 80 100 120

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Million tonnes YoY change in met coal supply to China

Domestic Coal Mongolian Imports Seaborne Imports

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SLIDE 24
  • The key question!
  • Yes
  • Real estate market continues strong
  • Steel remains strong, restarts, and improving prices
  • Continued modest infrastructure spending boosting demand
  • Loans more available and easier credit
  • No
  • Overcapacity remains and could be getting worse
  • Too rapid recovery, too quick a response
  • Real estate inventories tier 3, 4 still large, too large?
  • Lack of pick up in ROW
  • Summary – yes for now, but late 2016 into 2017?? risks
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SLIDE 25

1. Introduction – setting the scene 2. Snapshot – conditions Coke meeting Pittsburgh 3. Outlook today – what has changed and why 4. Australia’s role in the met coal and coke market 5. Looking ahead Australia in 2020 6. Long term future, where will we be in 50 years? 7. Concluding remarks

H & W Worldwide Consulting

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SLIDE 26

Cairns Townsville

Brisbane Sydney Melbourne Perth Darwin Hobart Adelaide Canberra

AUSTRALIA

Rockhampton Gladstone Mackay

HUNTER VALLEY Semi-soft coking coals and PCI coals ILLAWARRA Premium high quality coking coal and moderate coking coal BOWEN BASIN Premium high quality coking coal, Very low volatile PCI coals

H & W Worldwide Consulting

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SLIDE 27

Russia 13mt

Australia 183mt

Europe 53mt

2mt 2mt

42mt

1mt

Canada 30mt

20mt

*Coking coal and PCI

Major exporter Major importer

India 55mt

Brazil 20mt

6mt

USA 30mt Colombia 6mt Mozambiq ue 2mt Indonesia 1mt

Japan 55mt Korea 33mt Taiwan 11mt China 34mt

20mt 9mt

26mt

46mt 31mt

2mt 5mt 20mt

4mt

From Canada

7mt

6mt

7mt

3mt

Source: Customs data, Macquarie Research, H&W Worldwide Consulting

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SLIDE 28
  • 20,000,000

40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000 160,000,000 180,000,000 200,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Australian met coal exports

Europe China Japan Korea Taiwan India Brazil Other

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SLIDE 29
  • 25,000,000

50,000,000 75,000,000 100,000,000 125,000,000

2002 2004 2006 2008 2010 2012 2014

Australian HCC coal exports

Europe China Japan Korea Taiwan India Brazil Other

  • 10,000,000

20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000

2002 2004 2006 2008 2010 2012 2014 Australian SSCC and PCI coal exports

Europe China Japan Korea Taiwan India Brazil Other

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SLIDE 30
  • Australian market share limited by rise in Mozambique and

limited new mines to 2020

  • Declines in US and limited Russian, Indonesian growth

50 100 150 200 250 300 350

Australian exports

Australia Other

40% 45% 50% 55% 60% 65% 70%

Australian market share

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SLIDE 31

Strengths Weaknesses

 Large reserves of HQHCC and SSCC  Close to coast  Coals perform well in all blends  Technically strong, high CSR, low OWP  Close to major Asian markets  Proven infrastructure  Very large mines  Generally, third party owned infrastructure  Rising strip ratio, impacting costs  Rising ash levels  No high fluidity HV or high vitrinite  Weather – summer rain  Heavily unionised

Opportunities Threats

 New mine opportunities – if needed  Productivity rising after period of declines  Further cost reductions, labour, technology (following iron ore)  Ports, rail expansion options  Rising Green movement  Political pressures/interference  Mozambique into India, Brazil, EU  Rising rehabilitation costs

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SLIDE 32

10 20 30 40 50 60 70 80 15 20 25 30 35 40 CSR (%) Volatile Matter (% VM) Low Volatile High Volatile Mid Volatile US LV US HV

Australian Hunter Valley SSCC Australian Queensland SSCC

Australian HCC Canadian HCC

Generalised blending box

Australian SHCC Hard Coking Coal Semi-hard Coking Coal Semi-soft Coking Coal

Source: H&W Worldwide Consulting

H & W Worldwide Consulting

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SLIDE 33

10 20 30 40 50 60 70 80 90 100 110 120 50 100 150 200 250

FOB Cost ($/t)

  • HCC equivalent

Cumulative volume (Mt)

USA Canada BMA Russia Indonesia Australia Mozambique China Other

Spot price

Quarterly contract

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SLIDE 34
  • Supply issues
  • Closures Crinum early 2016, reductions Illawarra,
  • Anglo’s Moranbah North, Grosvenor up for sale
  • Weather problems, mild in February/March
  • Declining quality in Rangals (Burton, Hail Creek)
  • Other PCI/WCC mines up for sale
  • Take or pay
  • EBA’s
  • Up for negotiation – far apart, strike???
  • Union militancy – election year
  • Capex
  • Very, very limited, sustaining not expansion
  • Majors unlikely to authorise any new capacity, creep only
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SLIDE 35

1. Introduction – setting the scene 2. Snapshot – conditions Coke meeting Pittsburgh 3. Outlook today – what has changed and why 4. Australia’s role in the met coal and coke market 5. Looking ahead Australia in 2020 6. Long term future, where will we be in 50 years? 7. Concluding remarks

H & W Worldwide Consulting

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SLIDE 36
  • Supply issues
  • Restart some idled capacity e.g. Isaac Plains, Wongawilli, Integra
  • Expansions brownfield likely at Caval Ridge, Goonyella, Grosvenor,

Illawarra (South 32, Wollongong coal)

  • Gunnedah basin, increased SSCC
  • Major review into post 2020 = more long walls
  • Changes to take or pay contracts – ports yes; rail no or ????
  • EBA’s
  • Movement to reduced union control, automation, contractors
  • Automation lowering labour numbers and costs
  • Capex
  • Coming back post 2017 – probably
  • New investment – India, China?
  • Port expansions - possible
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SLIDE 37
  • Linked to market demand and

cost structure – more flexibility

  • A$ important
  • Growth will depend on

brownfield

  • Balance with closures
  • Australia becoming more

dominant with US closures

  • No change in technology

160 170 180 190 200 210 220 Million tonnes

Australian coking coal 5 year outlook

Australia low Australia Base Australia high

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SLIDE 38
  • Overall market issues
  • Demand growth rate uncertain – India, China domestic
  • Supply uncertainty US – final end? options for others
  • Potential weather rain/snow events = return of volatility
  • Full commoditisation of coking coal? Or not???
  • Australia’s role – continued dominance
  • Low cost, plentiful reserves, favourable location, etc.
  • Risks are environmental activism, exchange rates
  • Interplay with new high vitrinite coals, Mozambique, Indonesia
  • Can Australia become flexible, balance supply/demand
  • Downstream processing?
  • Why doesn’t Australia make coke?
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SLIDE 39
  • History
  • Australia used to be an exporter, Port Kembla, ICC, now small
  • Batteries closed, no plans
  • Sun looked at Gladstone – not competitive
  • Australia why can’t it be a merchant coke producer?
  • Not a resource issue
  • Problems high labour costs, high construction and logistics costs
  • green activism – won’t accept coal and coke
  • Suncoke style technology – could it be done? Yes but not economic
  • Competitors
  • Won’t China always have too much capacity?
  • What about Indonesia or Mozambique for coke production?
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SLIDE 40

1. Introduction – setting the scene 2. Snapshot – conditions Coke meeting Pittsburgh 3. Outlook today – what has changed and why 4. Australia’s role in the met coal and coke market 5. Looking ahead Australia in 2020 6. Long term future, where will we be in 50 years? 7. Concluding remarks

H & W Worldwide Consulting

slide-41
SLIDE 41

Source: UN Population Statistics

slide-42
SLIDE 42

42

Source: World Bank, IMF, Saul Eslake Grattin Institute

Stylized depiction of the relationship between per capita GDP and commodity demand

US Australia Japan Euro area Russia Mexico China Indonesia

Subsistence, agriculture

Manufacturing & urbanization Services

10 20 30 40 50 60 70 80 90 100 5 10 15 20 25 30 35 40 45 50 Per capita GDP at 2010 purchasing power parities (US$ 000s) Commodity demand (hypothetical units)

H & W Worldwide Consulting

India

Africa

slide-43
SLIDE 43
  • The “known”
  • Steel will still be the major industrial material
  • The recycling pool will grow, size and efficiency – more scrap available
  • Aging and longevity with see the rise of a “bipolar” population
  • There is sufficient met coal for the next 50 years
  • Likely to see continued environmental pressures
  • The “unknown”
  • Climate change entrenched or will carbon leakage continue
  • Technology, will we see the end of the BF – finally cokeless ironmaking
  • Substitute’s penetration into premium high value steel markets – autos
  • Industry structure – will we see more consolidation, vertical integration
  • DR could become a rising threat to coke/BF
slide-44
SLIDE 44

2010 2015 2020 2025 2030 2035

India >400-600Mt Indonesia >100-250Mt Other Asia >80-150Mt

Africa >>800Mt

Other, e.g. South America, Middle East >150Mt

H & W Worldwide Consulting

China Uncertainty

2050

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SLIDE 45

1. Introduction – setting the scene 2. Snapshot – conditions Coke meeting Pittsburgh 3. Outlook today – what has changed and why 4. Australia’s role in the met coal and coke market 5. Looking ahead Australia in 2020 6. Long term future, where will we be in 50 years? 7. Concluding remarks

H & W Worldwide Consulting

slide-46
SLIDE 46
  • After the doom and gloom, some bright spots
  • Near term looks good but risks of uncertainty into 2017
  • Australia well endowed with reserves and infrastructure
  • Dominance in the past here to stay – possible increasing
  • Premium LV HQHCC supplier – always in demand
  • Australia highly competitive vs. new comers
  • Long term future challenging but Australia uniquely placed