WM Sultoon What lies ahead for global coal 8 April 2015 vF · 2015. 4. 18. · LCPD (40 GW –...

What lies ahead for global coal?

Trusted commercial intelligencewww.woodmac.com

Jonathan Sultoon

Research Director – Global Coal Markets

National Coal Council

2015 Spring Meeting

8 April 2015


2

Greater granularityOur valuation, costs and

markets analysis deliver data

on the full coal value chain in

its most detailed and

comprehensive form.

MacroeconomicsWe use a set of detailed

proprietary models to project

economic development to 2035,

drawing on our commodity

outlook, demographic

projections and investment and

productivity analysis on each

major economy.

Robust dataOur proprietary data is

subject to rigorous

internal and external

examination to help

provide an independent

and objective view.

Direct AccessOur recognised and

respected team consistently

delivers the highest quality

research and are easily

contactable to help answer

your commercial questions.

Forward-thinking The bottom-up approach we apply

to our analysis lets us spot trends,

risks and opportunities before

anyone else so you can forecast

in context. Our long-term reports

look to 2035 so you can identify

opportunities and risks as part of

your planning process.


3

This content is available to purchase. Your company can

opt to subscribe to this content on a global or regional basis.


4

This content is available to purchase. Your company can opt to

subscribe to this content for individual regions, or coal types.


5

Agenda

1. A brief history of time (the last 15 years)

2. The state of today’s coal markets: where next for China?

3. Looking ahead: when does demand return, and where?

4. What do these trends mean for costs and prices


6

$0

$30

$60

$90

$120

$150

$180

2000 2002 2004 2006 2008 2010 2012 2014

US

$/t

on

ne

(F

OB

Po

rt)

90th percentile cost Newcastle spot price

Coal prices traditionally supported by marginal cost of production…

…but these are non-traditional times for metallurgical and thermal coal markets

Thermal spot price versus 90th percentile cost

Source: Wood Mackenzie Coal Supply and Coal Market Services

$0

$50

$100

$150

$200

$250

$300

$350

2000 2002 2004 2006 2008 2010 2012 2014

90th percentile HCC cost HCC price

LV HCC price versus 90th percentile cost


7

Seaborne coal trade ground to a halt in 2014, with China turning negative for the first time since becoming a net importer

Source: Wood Mackenzie Coal Market Service

And yet, supply overcapacity is still a chronic problem

Total met and thermal imports: 2015 demand continues to look weak

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

100

200

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

2008 2009 2010 2011 2012 2013 2014 2015

An

nu

al

Gro

wth

%

Se

ab

orn

e D

em

an

d (

Mt)

China India ROW Growth %

-50

0

50

100

150

200

250

2014 2015 2016 2017 2018O

ve

rha

ng

in

th

erm

al s

up

ply

ca

pa

cit

y (

Mt)

Overcapacity from highly probable projects

Overcapacity from operating projects

Announced production cuts


8

� Steel/coal overcapacity

� Price reform

� 4th Plenum

� APPCAP policies

� Ultra low emissions

� NEA re structure

China – coal’s largest growth engine – is undergoing a major restructure in politics and economics

Environment, energy, and anti-corruption are three focus areas

Energy Market Anti - Corruption

� Policy shift

� ‘Tigers and flies’

� Energy sector ‘freeze’

Source: Wood Mackenzie Energy Markets Service


9

Environmental Policy

And Chinese coal markets were rocked by uncertainty in 2014

Six distinct policies/edicts affecting Chinese and global coal markets, now and into l-term

All impact thermal coal, some impact metallurgical coal

APPCAP evolution

01. Coal

qualitystandards

02a.

Domestic Protectionism

ImportTariffs -

FTA

03. NDRC import cuts

05. 04. Domestic

production reform

Trace elements

02b. Export

tax reduction

06.


10

Significant crude steel and hot metal production growth still promises an improved mid-to-long term outlook

The recovery should begin in 2016, but will not gather pace until 2018

1,248.8

1,451.8

33.3

83.1 11.111.7

26.8 19.09.0 5.0 4.0

0

100

200

300

400

500

600

0

500

1,000

1,500

2,000

2,500

2008 2012 2016 2020 2024 2028 2032

Me

tall

urg

ica

l c

oa

l im

po

rts

(M

t)

Ste

el &

ho

t m

eta

l p

rod

uc

tio

n (

Mt)

Crude steel prod Hot metal prod

Coking coal Imports PCI imports

Global steel, hot metal production & coal import demand

Source: Wood Mackenzie Steel Market and Coal Market Services

Net change in hot metal production 2014 to 2035 (Mt)

� Urbanisation and industrialisation in China and India remain the key facilitators of crude steel, hot metal and coke production growth

� Chinese peak steel and hot metal continues to reside in late-2020 timeframe

� Attention moves to India as quantity/quality of domestic production and maturation of industry far behind that of China


11

In China: new energy policies have already accelerated the shift of energy-intensive industries from eastern to western provinces

0%

2%

4%

6%

8%

10%

12%

14%

16%

2005 2013

0%

20%

40%

60%

80%

100%

2005 2013

0%

5%

10%

15%

20%

25%

30%

2005 2013

0%

5%

10%

15%

20%

25%

30%

35%

40%

2005 2013

West North East

Central East

Metal products

Electrical manufacturing

Ferrous metal smelting and rolling

Black metal mining

Non-metallic minerals

Source: China National Bureau of Statistics, Wood Mackenzie

% of China total

Data Key


12

Coastal China saturation a key threat, but stronger growth in coal fired capacity in Western provinces

Source: Wood Mackenzie

0

1000

2000

3000

4000

5000

6000

7000

2008 2011 2014 2017 2020 2023 2026 2029 2032 2035

North-east North Coastal Central West

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2008 2011 2014 2017 2020 2023 2026 2029 2032 2035

TW

h

Coal Natural Gas Nuclear Hydro

Renewable Oil Other

Mt

2008-13

34% CAGR in imports

2014-20: marginal growth in imports

2020-35: 5% CAGR in imports

Power generation by fuel-type (TWh) Thermal demand by region (Mt)

Coal’s contribution to power sector falls to 60% with downside risk



13

Supply: Debottlenecking through the northern routes allows for additional volume to reach coastal provinces

Room for both domestic supply and imports: Seaborne imports reach 680 Mt by 2035

Source: Wood Mackenzie Coal Market Service H2 2014 LTO

0

100

200

300

400

500

600

700

800

900

1,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2008 2012 2016 2020 2024 2028 2032

Imp

ort

s (

Mt)

Su

pp

ly &

De

ma

nd

(M

t)Metallurgical demand Other, non-power demand

Power demand Cement demand

Domestic production Seaborne imports


14

0

100

200

300

400

500

600

700

800

900

1,000

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2008 2012 2016 2020 2024 2028 2032

Imp

ort

s (

Mt)

Su

pp

ly &

De

ma

nd

(M

t)

Metallurgical demand Other, non-power demand

Power demand Cement demand

Domestic production Seaborne imports

Timely development of India’s infrastructure capacity and monetizing

coal assets will be crucial to meet domestic production targets


Washing capacity to expand by ~ 300 Mtpa to overcome high ash levels

Coal transport infrastructure (now and into future) Seaborne imports reach 550 Mt by 2035

Rapidly increasing thermal demand in coastal locations will support imports


15

-15

-10

-5

0

5

10

15

2008 2012 2016 2020 2024 2028 2032

GW

Retired Hard Coal Retired Lignite Generic Hard Coal

Generic Lignite Generic CCS Named Hard Coal

Named Lignite

EMEA* coal plant retirements arrive in two wavesLCPD (40 GW – majority has passed), IED comes next (40 GW)

Source: IEA & Wood Mackenzie

Almost all new named plants beyond 2016 are in Poland and Turkey

Coal’s share of the power sector plummets to 10% after the IED

*EMEA: Europe, EU accession + MENA

0%

5%

10%

15%

20%

25%

30%

0

100

200

300

400

500

600

700

800

900

1000

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

Mark

et S

hare

TW

hUK IT ES

TR DE PL

Other Europe Share of supply


16

Suppliers: Indonesia / US benefit from growing low-rank coal demand, and Australia dominates bituminous and met markets

But not without key risks

Seaborne coal growth (2014-35) by rank (Mt)� “Illegal” mining in Indonesia being addressed

» ET Batabura

» Royalty payments slip, now LoC draft

» Fewer surveyors

� US PRB faces growth but some key risks

» Port construction / permitting

» Declining domestic demand

» Lack of appetite for financing at current prices

» Royalty revision

� Australian expansion in met markets

» Focused on winning back market share from US/Canadian exporters

» Laser focus on cost reductions and assistance from FX

Source: Wood Mackenzie Coal Market Service H2 2014 LTO

-200 -100 0 100 200 300 400

USA

Australia

Indonesia

Colombia

Russia

South Africa

Canada

Mozambique

Mt

High Sub-Bit Lignite Met


17

Cost evolution: FX is and will have significant impact on the US, providing relief on tight margins, especially in Russia

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

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

Source: Wood Mackenzie Coal Supply Service


18

…plus the impact of the oil price slide (as it translates through to diesel costs)

Largest impact is in Indonesia where reduction in cash costs could be up to US$8/t

0% 10% 20% 30% 40% 50%

Indonesia

US (APP)

South Africa

Colombia

Venezuela

Chile

Mozambique

Russia

Canada

US (ILB)

US (PRB)

Australia

China

Share of diesel costs

0% 5% 10% 15%

China

Indonesia

Australia

Russia

South Africa

Botswana

US (ILB)

US (APP)

Canada

Colombia

US (PRB)

Share of diesel costs

Surface mining diesel components Underground mining diesel components

Source: Wood Mackenzie Coal Supply Service


19

0

20

40

60

80

100

120

140

160

180

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

202

3

202

4

202

5

US

Ex

po

rts

(M

t)

Met exports Thermal exports

US exports – languish before growth (although PRB risks well established)

-500

-400

-300

-200

-100

0

100

200

300

$0

$50

$100

$150

$200

$250

2012 2014 2016 2018 2020 2022 2024

Glo

ba

l s

up

ply

ca

pa

cit

y o

ve

rha

ng

(M

tpa

)

US

$/t

, re

al 2

01

4

Seaborne demand vs operating capacity (HCC)Seaborne demand vs operating capacity (thermal)FOB Newcastle ThermalFOB Queensland HCC

Will 2015 finally provide the floor for prices in the coal market? And how do US coal exports fare in the new environment?Critical market risks centered around the pace of industrialisation, structure of Asian s/d, and penetration of meaningful, scalable alternatives in power markets

Source: globalCOAL and Various Pricing Surveys (History), Wood Mackenzie Coal Market Service (Forecasts)

Prices – only recover meaningfully when excess supply capacity wound down


20

Jonathan Sultoon

� Jonathan has 14 years experience analysing energy markets: including coal, gas, LNG and power. He currently directs analysis and research for the Atlantic Coal Markets, both thermal and metallurgical. His areas of expertise are in short and long-term demand forecasting for the international coal markets, competition between multi-fuels in the power generation sector, corporate analyses of the major producers and utilities, and fundamentals-based price forecasting for the coal market. Prior to joining the Coal Markets Research team in 2008, Jonathan fulfilled a similar role as a member of the European Gas and Power Research team in Wood Mackenzie's London office. He drove short and long-term European gas market fundamentals and provided expert support on bespoke consulting projects in the European Gas and Power arena.

� Before joining Wood Mackenzie in 2006, Jonathan spent five years at Gas Strategies Consulting. He managed their European Gas supply and demand service and also project managed a number of consulting assignments, including; market entry and pricing strategy into Europe for an integrated major, project due diligence for a consortium operating an LNG liquefaction project in West Africa, and a pipeline monetization strategy routing into the Indian Subcontinent. He also provided expert support for QG2 and RG2 LNG liquefaction projects.

� Jonathan holds a BA (Hons) and MA (Hons) in Physics from the University of Oxford, UK.

Research Director – Global Coal Markets

E [email protected]

T +1 410 295 4233


21

Disclaimer

� This report has been prepared for presentation to the NCC on 8 April 2015 by Wood Mackenzie Limited. The report is intended solely for the benefit of our clients 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 is based 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

Europe +44 131 243 4400Americas +1 713 470 1600Asia Pacific +65 6518 0800

Email [email protected] www.woodmac.com

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 theyneed to make better strategic decisions. For more information visit: www.woodmac.com

*WOOD MACKENZIE is a Registered Trade Mark of Wood Mackenzie Limited

WM Sultoon What lies ahead for global coal 8 April 2015 vF · 2015. 4. 18. · LCPD (40 GW –...

Documents

Transcript of WM Sultoon What lies ahead for global coal 8 April 2015 vF · 2015. 4. 18. · LCPD (40 GW –...