Steel, Coal and Coke Market Outlook. Mike Nobis S&P Global Platts Coal Marketing Days 2017 September 26 th 2017

Transcription

1 Steel, Coal and Coke Market Outlook Mike Nobis S&P Global Platts Coal Marketing Days 2017 September 26 th

2 DTE Energy Company DTE Energy ELECTRIC & GAS UTILITIES NON-UTILITY BUSINESSES DTE Electric DTE Gas DTE Power & Industrial Group DTE Gas Storage & Pipelines DTE Energy Trading Key Facts Revenue $10.6 Billion Operating Earnings $948 Million Assets $32 Billion Credit Rating BBB Equity Market Cap $17.6 Billion Employees 10,000 DTE Energy (NYSE: DTE) is a diversified energy company involved in the development and management of energy-related business and services nationwide 1

3 DTE s steel projects supply coke, pulverized coal and related products critical to the steel production process Products and Services DTE s coke batteries produce coke from metallurgical coal - a necessary feedstock/fuel for steel mill blast furnace operations Coke production by-products such as coke oven gas, tar and oils are processed and sold for industrial applications DTE s pulverized coal is used as a substitute for higher cost natural gas and metallurgical coke in blast furnace operations Project Portfolio Pulverized Coal Projects: River Rouge, MI facility serving US Steel River Rouge, MI facility serving AK Steel Coke Battery Projects: EES Coke, Detroit, MI 2

4 Summary of current steel, coal, and coke market conditions World steel markets are experiencing a demandled recovery Hot-rolled coil steel price on world market is up ~$100/tonne from April 17 Highest world steel prices since period This is occurring despite record Chinese (and world) steel production in 2017 $800 Hot Rolled Coil Price, $/tonne $700 $600 $500 $702 $561 The North American steel market has stabilized at profitable levels Starting in 2016, tariffs and trade barriers have helped to mitigate the flood of imported steel and allow steel prices to recover to profitable levels Imports still a threat but higher world prices make it less of a short-term concern Industry is still waiting on Section 232 announcement President Trump: I want tariffs. Bring me some tariffs! China is laughing at us. Stubbornly high seaborne met coal prices may persist in the short term but will likely prove to be unsustainable Short-term fundamentals are supportive of a risk premium bid into met coal market Longer term outlook is more dismal high prices attract increased world production In past cycles, the increased production hits the market about the time demand hits a cyclical peak and starts to decline $400 $300 $200 $350 $300 $250 $200 $150 $100 World Domestic Chinese Furnace Coke, $/tonne FOB $305 3

5 Key Challenge managing volatility in an increasingly boom/bust world Premium Australian Low Vol HCC* $350 $/tonne FOB, Monthly Average $300 $250 $200 $150 $100 $50 Sometimes you eat the bear $74 $301 Sometimes the bear eats you $197??? Commodity cycles are becoming quicker and more amplified! Driven less by true supply and demand fundamentals Hot money flows from funds and traders around the world have an outsized impact even on niche markets Global economy awash in too much cheap money: Leads to persistent overcapacity Met coal market over past 18 months: $74 to $301 to $150 to $260 to $140 to??? I rest my case! *Source: S&P Global Platts 4

6 Well, what did you think was going to happen? In order to make a decision you need to focus on the consequences (which you can know) rather than the probability (which you can t know) Nassim Taleb, author of Black Swan What does this mean for us? Price is a probability function it s an unknown However, the consequences of price are known and can help us make better sales & procurement decisions 5

7 How can we make good procurement decisions in a volatile environment? Develop a clear set of guidelines Example: EES Coke Battery Minimize delivered coal cost per ton of coke Meet/exceed coke quality specifications of our customers Manage environmental constraints (coke oven gas SO2) Asset preservation (manage wall pressures) Be flexible and work to develop alternatives Example: EES Coke Battery Test and qualify additional coal supplies More suppliers, more off-site blending Have a program to develop coal supply bench strength Understand the risks and experiment with mitigants Index vs fixed pricing in contracts Sometimes the cure is worse than the disease For domestic players, does index pricing actually increase risk? Multiple suppliers vs. single source Diversity vs. high management Long term vs. short term contracts Volatility pushes us all toward shorter term deals, but Overall system stability may be enhanced via long-term contracts Don t panic* Be flexible, creative, focus on risks and consequences, but above all else Avoid making large irreversible decisions at major tops and bottoms in the market! * Douglas Adams, The Hitchhiker s Guide to the Galaxy 6