Energy and commodity price benchmarking and market insights

Transcription

1 Energy and commodity price benchmarking and market insights London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg

2 US coals update: Changes and prospects in 2013 Washington, DC Chris Newman, Editor, Americas Transportation & Coking Coal Molly Christian, Editor, Argus Coal Daily 6 March 2013

3 2013: Year of transition Supply overhang still dominates US coal markets Production shifts away from high-cost Central Appalachia New specifications highlight rise of Illinois Basin, coking coal Exports may slow but remain bigger focus Port options proliferate despite slowdown Arbitrage window narrows for steam coals Indexation adapts to new reality Eastern rail rates link to coal indexation US Gulf, east coast FOB markets develop Heat and sulfur adjust to demand

4 Argus Media Report prices globally for Steam and coking coals Natural gas Emissions Transportation Power Refined products Crude Fertilizers Petrochemicals Over 400 staff globally Largest team of coal reporters in world

5 US coal market fundamentals: Waiting on 2014

6 mn st Utility coal stockpiles seek new normal 2013 is going to be the year of the inventory overhang. CSX CFO Fredrik Eliasson To reach target level o What is new normal for fewer coal plants? o Previous mn st down into mid-130s to mid 140s st o Weather, natural gas prices, producer discipline Jan-12 Apr-12 Jul-12 Oct-12 Source: EIA

7 mn MWh Gas competition: Coal back from lows of 2012 Gas under $3.25/mmBtu first nine months 2012 o Southern, AEP burned more gas than coal Unconventional gas weighs Another 7.5mn st of coal equivalent each month o Acts as a new coal basin o Gas in storage may end winter above 2 Tcf 50% % % % % 80 Jan-10 Aug-10 Mar-11 Oct-11 May-12 Coal generation Pc of total generation

8 US supply adapts to domestic demand pressures

9 mn st $/st Significant mining cuts in Central Appalachia Gas, plant closures dent CAPP demand and prices 2012 output -20pc from 2011 and 37pc below Mining costs in the $60/short ton range are in line with spot thermal prices, driving output toward higher-margin coking coal Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Production 12,500 Btu, 1.6lb SO2 Sources: MSHA, Argus

10 CAPP increasingly a coking, export steam supplier We continue to focus on our highest-margin metallurgical coal business while idling some lower-quality production. Exports used to be the tail and the domestic side was the dog, but really as we move forward the next two or three years it is going to be split. -Alpha chief executive Kevin Crutchfield

11 mn st $/st Northern App output down but seeks new buyers Output feels pinch from gas, plant retirements o Volumes -6.3pc from Better costs may extend domestic, export reach o Longwall costs in $30-40/st range o Sulfur discount good for export market o Crossover, coking coal output through Baltimore Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Production 13,000 Btu, 4.5lb SO2 Sources: MSHA, Argus

12 mn st $/st PRB had tough 2012, improves against gas Output last year down 9.4pc from 2011 and 15.5pc below High stockpiles keeping production under pressure, but PRB prices well against natural gas Exports a tougher move o Rail costs significant for Canada export move o USWC capacity tight 90 Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Production 8,800 Btu, 0.8lb SO2 Sources: MSHA, Argus 7

13 mn st $/st Exports bright spot for western bituminous Very significant 2012 supply response Output down 21pc from 2008, 4pc from 2011 Long haul to east less economic; Colorado unit closures further cut demand An attractive export option o Rail to USGC o Rail to Mississippi o USWC exports being done Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Production 11,700 Btu, 0.9lb SO2 Sources: MSHA, Argus

14 mn st $/st Illinois basin bucks price, output trends Low-cost longwalls adds capacity o Production up 26pc from 08 and 9pc from 2011 o Coal Trading Association backs new OTC trading product Great export logistics o Rail to USGC o Barge to Mississippi o Sulphur watched Q1-08 Q1-09 Q1-10 Q1-11 Q1-12 Production Barge 11,500 Btu, 5lb SO2 Sources: MSHA, Argus

15 US coal supply pivots toward the world

16 mn st Steam coal lifts US exports to record 126mn st Jan-10 Aug-10 Mar-11 Oct-11 May-12 Dec-12 Steam Coking Source: US Census Bureau Thermal coal all of last year s export gains o Steam +50pc yoy at 56mn o Growth driven by Europe, but Asia up a bit too Coking coal flat at 70mn st o Rise in shipments to Asia offsets declines to Europe

17 Exports by major exits (122mn of total) Pacific Northwest Tonnage 4.9mn Change 0% Great Lakes Tonnage 5.8mn Change -2% Baltimore Tonnage 19.1mn Change -1% California Tonnage 1.5mn Change 6% New Orleans Tonnage 28mn Change 32% Hampton Roads Tonnage 49mn Change 20% Texas (seaborne) Tonnage 2.7mn Change 397% Mobile Tonnage 10.7mn Change 6% *US shipper capacity

18 Potential build-out over next five years West Coast Ridley 5* Westshore 5* Gateway 15 Millennium 25 KM Westward 15 Ambre Morrow 8 California/other 6 Total 79 Great Lakes Total 15 US total Grand total 377mn st East Coast CNX Marine 30 Curtis Bay 10 Pier IX 15 DTA 20 Lamberts Point 30 Other 1 Total 106 Texas/New Orleans IMT 16 Armstrong Coal 6 Burnside 7.5 United Bulk 22 LDH Energy 5-7 Other Nola 12 Convent Marine 24 Mid-stream 24 Texas 30 Total 148 Southeast McDuffie 16 Walter terminal 6 Charleston 3 Other ports 4 Total 29 *US shipper capacity

19 Exporters starting to top-off Capesize vessels Vulcan has done two topoff operations at Mobile CSL preparing for first top-off at Mobile, says adds 60,000mt to load

20 $/mt API 2 price drop shuts out many US coals Oct-11 Mar-12 Sep-12 Feb-13 US 12,000 Btu, less than 1pc sulfur from Hampton Roads US Btu, 3pc typical sulfur from New Orleans Coal API2 index (cif ARA) Balance of week number, No time stamp, index Central Appalachian coals having a tough time competing against less than $90/mt API 2 prices High-sulfur Illinois basin, Northern App coals may be in better position

21 Changes encourage new coal indexation

22 Railroads get flexible on export rates CSX links export rail rates to API 2 coal prices Set as a percentage The bid-ask on the rate: railroad wants it at 20pc, shippers want at 15pc

23 International buyers more attuned to US prices East and Gulf coast terminals are key US pricing hubs Spread between lowand high-sulphur coals closely watched in USGC

24 And US sales more in tune with overseas buyers US coking coal exports moving away from annual contracts to quarterly pricing and spot sales Alpha, maybe others aligning Central App production more with API 2/seaborne spec Possible addition of lower-heat FOB mine assessment?

25 Summary Gas competition forcing US coal producers (outside the Illinois basin) to cut output and restrict production to the most economic ton US supply and buying practices more aligned with international markets, including increased focus on spot purchases and alignment of quality more with API 2 contract Coal and transport indexation changing to accommodate higher exports, domestic gas competition

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27 Any questions?

28 Molly Christian Editor, Argus Coal Daily +1 (202) Chris Newman Editor, Americas transportation and coking coal +1 (202) th St. NW, Suite 1500 Washington, DC USA Copyright notice All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, FMB, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Ltd. Visit for more information. Disclaimer All data and other information presented (the Data ) are provided on an as is basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.