Coal Markets Overview, trends Domestic and Export Markets Junior Coal Mining Ventures X 1
Coal Markets Overview, trends -Domestic and Export Markets Global Overview Financing Coal Mines South Africa s Markets Exports Local Industry 2
The Coal Markets 2015 Over the coming decade, coal demand will, hopefully, continue to rise. The International Energy Agency s (IEA) World Energy Outlook 2014 suggests that while coal will undergo a relative decline in the energy mix, global coal demand by 2040 will rise 15%. However, coal consumption will vary dramatically from region to region. In coming decades, coal demand will originate from non- OECD states, primarily Southeast Asia, Middle East, India, Africa and Brazil. 3
The Coal Markets 2015 In Europe s declining economy,the access to cheap gas and renewable policy incentives have promoted the weakening of coal. Nevertheless, scope does exist for growth, in cases like the phase out of nuclear power in France WCA. Undeniably in the coming decades, coal production and pricing trends will be led by Asia. By 2040, China, India, Indonesia and Australia will be responsible for 70% of global production. 4
The Coal Markets 2015 In China, despite the recent trend, demand for coal will continue because attempts to expand the role of gas at the expense of coal will not succeed. Gas, as well as renewables and nuclear energy, will grow over the coming decades, however,the coal use for electricity generation is fundamental. Amore likely scenario for reductions in coal demand will come from industrial shifts from coal to gas and structural changes to the Chinese economy. India s economic development, as China s before, is founded in coal. As the world s third largest producer, coal accounts for 68% of electricity generation. India s Planning Commission projects that 2 billion tons of coal will be required by 2031-2032 to meet their energy demands. 5
Global Coal Latest News Global coal is declining. It has become unwanted because of competition and air pollution. China's coal industry has been changed drastically by new regulations and the imperative to cut emissions. India's coal imports will be affected by its planned new production increase. Indonesia coal output and exports are declining because of low prices. US coal is unable to compete economically with gas. The US s coal industry has to consolidate to survive. In Europe s declining economy, cheap gas and renewable energy have produced a drop in coal use. Implementation of carbon tax will hurt growth, and intensify unemployment in South Africa. Japan is gearing for more coal-fired power. It will become a larger consumer. In Australia; majors are becoming less involved in coal and small companies are forced into consolidation and closures. 6
Thermal Coal Thermal coal prices increased marginally as result of some suppliers, like Glencore production cuts. But after February the small price increases showed to be short-lived. Since the world's top user and importer of coal, China, has had a sharp fall in imports this year, the prices could not be maintained. Chinese imports might drop by 38Mt in 2015, and there is no importer able to take such a tonnages of coal that prices should remain high. In Europe coal imports have reduced and Colombia and Russia exports have replaced the other producers. Colombia's Drummond, is maintaining regular exports despite new low coal prices. 7
The Chinese Syndrome The decline of coal imports into China, has been a shock, and a huge impact. Low coal prices initiated China s imports of coal. China became the largest importer of coal globally, and steam and coking coal imports reached 260Mt in 2013. In 2014, China s monthly imports had attained 30Mt, supplying 10% of its coal needs. Then signs appeared, as China focused on air pollution in their cities. Soon, they started to change their link with coal. Import taxes and quality limits were publicised, and power plants had to reduce dependence on imported coal. For the first time, China s coal imports fell by 10% in 2014. 8
India s Quest India, only second to China in their coal usage and production, is aiming to produce 700Mt of coal in the next fiscal year, its biggest annual output, as it boosts production. India s output has been always slower than demand because of Coal India's (CIL) could not expand its mines. Despite the recent rise in output, imports are still high as power supply adds capacity. But the new government aims for India to be self-sufficient and has accelerated clearances for Coal India to open new mines. Private companies are to produce 90Mtpa from 42 mines. CIL will also raise its output. The result of these will be less coal imports and what is imported will be from Australia and Indonesia, their biggest suppliers. Where does that leave us, SA as supplier to India, with our current, 2015 exports a 38% of the total? 9
Australia s Blues It is a bad time for coal miners with prices for thermal and metallurgical coal at their lowest in years. The promised reduction of major miners have not managed to cap oversupply. The outlook for coal prices is likely to remain weak in the foreseeable future. Thermal coal prices have decreased more than 20% in the past year, creating painful hammerings for producers. With boldness and careful cost regulation, now is the right time for juniors to do coal projects before of the next prices increase, if there is one. Despite of renewables, coal is not disappearing soon. The world needs coal s cheap, reliable energy. BP s annual review says that coal s share of energy demand is the highest since 1970, making it the world s fastest growing fuel. 10
Indonesia s Conundrum Indonesia's coal production weakened 3.4% last year below total output from the previous year. Exports slid 5% in 2014, down from 2013. The decline in coal production, the first in 30 years for Indonesia, is the result of low global prices, which have led some producers to cut output and also of Indonesia's new export rules. A coal producer said it is more difficult to sell low rank coal in the global market. Now, he is aiming for the inland market where he is fetching better prices. He says; I m hopeful for our mines. We are hardly covering costs. Indonesia will revise its expected coal production for 2015 to around 460Mt. Indonesia is the world's top producer of thermal coal and the biggest exporter to China and India, both now cutting imports. 11
Asia s Analysis Demand will continue to rise. As with thermal coal, India is likely to overtake China as the biggest importer of metallurgical and thermal coal. India potential increase of coal imports, will probably be sourced from Australia. There are still difficult times ahead, mainly for thermal prices at their current levels. As with so many investments, the best is to invest on the down cycle. For those prepared to work cleverly on small budgets, the rewards will come. 12
Markets What Happened Developing Since Last Countries Year? Yvo de Boer says that coal is a vital part of the energy mix for years to come. The WCA has long been supporting the important role of coal in bringing people out of poverty. China is an example. On the past three decades China has connected 99% of its people to the grid, increasing steel production by 18%, and cement production by 14% and developing their economy rapidly. de Boer, said you have to be able to offer these countries a viable alternative, before you begin to reject coal. 13
Markets What Happened Coal Since Mining Last Finances Year? Financiers are not happy about funding coal because of environmental issues. This decision is praised by environmental groups who want banks to halt loans to coal miners. It has already been announced that lending to coal companies is reduced, because of the risk that future regulation and competition from natural gas pose on the coal industry. Here in South Africa it has become almost impossible to find funds to develop new projects 14
SA Exports 2014 by Region Region Mass (Mt) % Far East 40.5 54.39 Europe 18.1 24.38 Middle East 9.4 12.64 Africa 5.0 6.68 America (N + S) 1.4 3.38 15
SA Exports 2014 by Country 16 Country 2014 Country 2014 Argentina 367 499 Malaysia 1 606 446 Bangladesh 79 034 Mauritius 590 753 Benin 69 737 Morocco 1 338 387 Brazil 133 644 Mozambique 844 265 Canada 182 650 Netherlands 9 690 484 China 3 175 604 Nigeria 134 741 Croatia 135 000 Pakistan 3 366 568 Denmark 685 605 Portugal 155 000 Djibouti 319 317 Romania 43 460 Egypt 157 000 Senegal 552 462 Ethiopia 48 537 Spain 2 937 183 France 835 979 Switzerland 64 300 Germany 304 300 Taiwan 1 344 000 Ghana 40 000 Tanzania 46 000 Guyana 75 000 Togo 94 404 India 30 454 391 Tunisia 65 000 Irish Republic 126 821 Turkey 3 580 693 Israel 2 503 247 UAE 2 284 810 Italy 1 515 990 Uganda 10 000 Japan 145 000 UK 1 128 218 Kenya 445 567 Ukraine 520 875 Republic of Korea 305 300 Uruguay 33 000 Kuwait 336 446 USA 574 345 Madagascar 531 806 Yemen 382 626
RBCT Coal Index 2004 2015 180.00 US$/ton 160.00 140.00 120.00 100.00 80.00 US$ 60.00 40.00 20.00 0.00 Jan-15 Sep-14 May-14 Jan-14 Sep-13 May-13 Jan-13 Sep-12 May-12 Jan-12 Sep-11 May-11 Jan-11 Sep-10 May-10 Jan-10 Sep-09 May-09 Jan-09 Sep-08 May-08 Jan-08 Sep-07 May-07 Jan-07 Sep-06 May-06 Jan-06 Sep-05 May-05 Jan-05 Sep-04 May-04 17
SA s Inland Coal Market Tonnages User Mass (Mt) ELECTRICITY 117.3 SYNFUELS 39.6 MERCHANTS AND DOMESTIC 10.1 INDUSTRIES 5.2 STEEL 3.2 CHEMICAL 2.2 METALLURGICAL 1.7 CEMENT 1.0 BRICK AND TILE 0.2 AGRICULTURE 0.02 TRANSPORT 0.01 MINES 0.01 Total 180.8 18
SA s Inland Coal Market Prices User Mass (Mt) Price (R/t) ELECTRICITY 117.3 258 SYNFUELS 39.6 297 MERCHANTS AND DOMESTIC 10.1 381 INDUSTRIES 5.2 502 STEEL 3.2 588 CHEMICAL 2.2 237 METALLURGICAL 1.7 969 CEMENT 1.0 456 BRICK AND TILE 0.2 143 AGRICULTURE 0.02 734 TRANSPORT 0.01 777 MINES 0.01 742 Total 180.8 294 19
Markets What Happened SACRM Eskom s Future Since Last Year? Needs 20
Markets What Happened SACRM Since Last Eskom s Year? Future Coal Prices 21
Markets What Happened SACRM Since Last Eskom s Year? Future Coal Demand 22
SA Coal Industry Future Trends Despite a rapid but small increase in renewable energy sources to 1.6% of the total, fossil fuels still provide the major share of power generation with coal accounting for 85.6% of South Africa s electricity, a situation that will not change in the near term. As a result of the current lack Discards of incentives and capital 303.6 Mt to implement new projects, coal production has remained static for some 51.8 years. Mt Because some of the old big mines reserves are almost exhausted, production will soon will drop drastically. Inland prices have increased continuously and some better grades fetch now higher prices that similar grades in the seaborne market. Exports are constrained by lack of demand and extremely low prices. Year Electricity 120.8 Mt Exports 64.0 Mt Mass (Mt) 2002 220.2 2003 239.3 2004 242.8 2005 245.0 2006 244.7 2007 247.7 2008 252.7 2009 250.6 2010 254.7 2011 257.7 2012 258.4 2013 256.0 2014 260.5 23
Conclusions Coal production has stagnated since 2002. If new mines, of sizable production are not implemented, production will soon drop. than 303.6 MtFOB RBCT prices. Discards 51.8 Mt Electricity 120.8 Mt Exports 64.0 Mt Exports are not the revenue makers anymore. Some export quality coal finds inland buyers paying more Eskom future plans depend on increased production, which can be obtained by Eskom s investment on new projects. Coal will always be king in South Africa, if total economic collapse is to be avoided. 24
Coal in the Global and Southern African Context Thank you 25