Global Coal: A review of 2014 and outlook for 2015 presented to - - PowerPoint PPT Presentation

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Global Coal: A review of 2014 and outlook for 2015 presented to - - PowerPoint PPT Presentation

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Global Coal: A review of 2014 and outlook for 2015 presented to Coal Association of Canada members Joe Aldina Senior Analyst 24 February 2015 Trusted commercial intelligence www.woodmac.com 2014 was a challenging year for thermal coal

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Global Coal: A review of 2014 and outlook for 2015

presented to Coal Association of Canada members Joe Aldina

Senior Analyst

24 February 2015

Trusted commercial intelligence

www.woodmac.com

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2014 was a challenging year for thermal coal markets

Import demand change – 2014 vs. 2013 (Mt) Export supply change – 2014 vs. 2013 (Mt)

Source: Wood Mackenzie

(17.5) 17 1 (1)

  • 20
  • 10

10 20 2014 demand change China India JKT RoW Mt (5) 20 (16) 1

  • 20
  • 10

10 20 2014 supply change Indonesia Australia US RoW Mt

We estimate seaborne thermal imports did not achieve any demand growth in 2014

NOTE: 1. JKT means Japan, South Korea and Taiwan 2. RoW means rest of the world. 3. Data on these charts refer to Jan-Oct 2014 actual figures

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(5) 14 (6) (4) (3) (1) 2 (2)

  • 15
  • 10
  • 5

5 10 15

2014 Supply Australia US Canada Indo. Mozam. Russia RoW

Market has been jolted in 2014 by China’s retreat from the trade

Seaborne metallurgical imports fell in 2014 for the first time since the GFC

Supply change from key exporters* – 2014 vs 2013 Import demand change – 2014 vs 2013

Source: Wood Mackenzie Coal Markets Service Note: Demand and supply not balanced.

Australia has taken market share from nearly all its competitors this year

(8) (17) 0.4 6 2 2 (20) (15) (10) (5) 5 10 2014 Demand China JKT India Germany RoW

*Note: Global supply and demand not balanced in this chart. Final annual exports from smaller exporters will likely see further falls

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Chinese steel demand to remain subdued, limiting seaborne coking coal demand

Weak property sector weighing on demand Property sector expected to remain weak

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 aaa ccc (Y): Axis Title (X): Axis Title Series9 Series8 Series7 Series6 Series5 Series4 Series3 Series2 Series1 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 aaa ccc (Y): Axis Title (X): Axis Title Series9 Series8 Series7 Series6 Series5 Series4 Series3 Series2 Series1

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Canada was not spared from the pain felt around the world

2014 seaborne thermal coal operating margins (US$/t) 2014 seaborne metallurgical coal operating margins (US$/t)

Source: Wood Mackenzie

  • 100
  • 80
  • 60
  • 40
  • 20

20 40 60 80 49 99 148 197 247 296 Million tonnes ROW CANADA

  • 80
  • 60
  • 40
  • 20

20 40 60 99 197 296 394 493 592 690 789 Million tonnes ROW CANADA

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A look at the factors affecting global coal market

  • versupply

FX Seaborne demand Costs Scale Cash flow Contracts

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Even as mining costs stabilise, seaborne met coal cash costs fall across most regions on diesel and FX…

Seaborne metallurgical coal cash costs (US$/t) 2015 Cost Change (%)

Source: Wood Mackenzie

(30%) (10%) (6%) (3%) (0%) 3%

  • 30% -20% -10%

0% 10% Russia Mozambique Australia Canada Indonesia US App $40 $60 $80 $100 $120 $140 $160 Mozambique US App Canada Australia Indonesia Russia Cash cost (US$/tonne) 2012 2013 2014E 2015E

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…seaborne thermal coal cash costs continue to fall across most regions as well

Seaborne thermal coal cash costs (adjusted to 6,322 kcal/kg (gar)) (US$/t) 2015E Cost Change (%)

Source: Wood Mackenzie

$40 $50 $60 $70 $80 $90 United States Australia South Africa Colombia Indonesia Russia Cash cost (US$/tonne) 2012 2013 2014E 2015E

(28%) (5%) (4%) 3% 3% 4%

  • 30%
  • 20%
  • 10%

0% 10% Russia Indonesia Australia Colombia United States South Africa

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US (PRB) China US (ILB) Indonesia Chile Botswana South Africa Colombia Canada Russia Venezuela Mozambique US (APP) Australia

0% 2% 4% 6% 8% 10% 12% 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 Percentage change US$ per tonne change

*Bubble size represents total marketable production, 2014

Impact of diesel price slide has varying effects depending on operating regime

Mine site costs sensitivity by region

Source: Wood Mackenzie

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Margins remain thin, while currency moves provide some support

Seaborne metallurgical coal cash margins (US$/tonne) 2015 Negative Margin (Mt)

24 22

US App Australia Mozambique Canada Indonesia Russia

  • $20

$0 $20 $40 $60 $80 Russia Canada Australia Indonesia Mozambique US App Margin (US$/tonne)

2012 2013 2014E 2015E

Source: Wood Mackenzie

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Margins remain thin, while currency moves provide some support

Seaborne thermal coal cash margins (US$/tonne) 2015 Negative Margin (Mt)

Source: Wood Mackenzie

85 22 14 6 4 1 0 0

Indonesia Australia US PRB South Africa US APP US WB Canada Colombia Russia US ILB

  • $20
  • $10

$0 $10 $20 $30 $40 Russia Colombia South Africa Australia Indonesia US ILB US APP US PRB US WB Canada Margin (US$/tonne) 2012 2013 2014E 2015E

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Cost evolution: FX having significant impact, providing margin relief, especially in Russia

Operating margins – Russian export metallurgical coal (US$/t) Operating margins – Russian export thermal coal (US$/t)

Source: Wood Mackenzie Coal Supply Service

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A spike in rumoured deals in Q4 2014 points to a rebound in M&A

An estimated US$9 billion was added to our Coal Deal Pipeline in Q4 2014

Net additions / reductions in pipeline value (US$Bn) Number of identified assets in pipeline by type

Source: Wood Mackenzie

  • $5

$0 $5 $10 $15 $20 Q1 2014 Q2 2014 Q3 2014 Q4 2014 US$Bn Reductions Europe NE Asia Southern Africa Latin America SE Asia North America Australasia Cumulative net change

  • 20

40 60 80 Thermal HCC SCC PCI Australasia North America SE Asia Latin America Southern Africa NE Asia Europe

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Summary

Costs remain very near the bottom even with diesel price declines… Metallurgical coal prices are bottoming (even in US$ terms) – still some time before we see a material rebound in met or thermal markets Canada to benefit from weaker C$, weakness of US miners …but FX movements are improving margins in places such as Australia and Russia US miners are staggering; some may not be able to “go the distance”

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Questions?

Joe Aldina

Senior Analyst, Coal Research

T +1 212 915 2321 E joe.aldina@woodmac.com

Wood Mackenzie coal contacts Conor Bint

VP, Business Development

T +1 587 390 4303 E conor.bint@woodmac.com

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Disclaimer

 This report has been prepared for presentation to the Coal Association of Canada on

24 February 2015 by Wood Mackenzie Limited. The report is intended solely for the benefit of the Coal Association of Canada and its members and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.

 The information upon which this report comes from our own experience, knowledge

and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them. Strictly Private & Confidential

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Wood Mackenzie* is a global leader in commercial intelligence for the energy, metals and mining industries. We provide objective analysis and advice on assets, companies and markets, giving clients the insight they need to make better strategic decisions. For more information visit: www.woodmac.com *WOOD MACKENZIE is a Registered Trade Mark of Wood Mackenzie Limited