2010 international thermal coal market outlook draft

8/3/2019 2010 International Thermal Coal Market Outlook DRAFT

1/19

May 2010


2/19

2009 Overview Oversupply

Price response

Chinese & Indian demand

Market shift Where We Are Now

Continued Chinese restructuring

Still weak demand in Atlantic Basin

2010 Outlook


3/19

At the start of 2009, Atlantic Basin is grosslyoversupplied Macroeconomic factors

Displacement in dispatch order by cheap gas

Monthly coal stocks inthe US as of March 31,2009

Source: Energy VenturesAnalysis, Inc.


4/19

Atlantic and Pacific Basin prices respond

Source: McCloskeys CoalReport

$50

$70

$90

$110

$130

$150

$170

$190

Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09

Global Price Benchmarks (Sep 08 - Jun 09)

NWE Marker FOB RBCT FOB Newcastle


5/19

Pacific Basin demand shifts in 2nd half 2009 The story is China (w/ India helping out)

-67.9

-45.6

-25

-2.1 -4.5

104.3

138.5

(140)

(100)

(60)

(20)

20

60

100

140

2004 2005 2006 2007 2008 2009 2010e

Chinese Net Imports by Coal Type

steam met totalSource: CRU, SSY


6/19

2009: China restructures domestic miningindustry Improve productivity and safety

Domestic prices soar, imports become competitive

Source: Bloomberg, chart by JP Morgan


7/19

0

10

20

30

40

50

60

70

80

2005 2006 2007 2008 2009 2010e

MMm

etrictonnes

Indian Imports by Coal Type

steam met total

Source: McCloskeys CoalReport, Barclays Capital


8/19

India added 2 gw of coal-fired capacity in2009, after adding 5.6 gw in 2008

Part of 93 gw planned as part of 11

th

FiveYear Plan


9/19

Demand for seaborne coal in Pacific Basin grew 14% from2008 to 2009

Excluding China and India, demand was down 3% y-o-y

$50

$55

$60

$65

$70

$75

$80

$85

$90

Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09

Global Price Benchmarks (Jul 09 - Dec 09)

NWE Marker FOB RBCT FOB Newcastle

Source: McCloskeys Coal

Report


10/19

South Africa accelerates shipments to thePacific Basin to meet China/India demand

0

10

20

30

40

50

60

70

80

90

2006 2007 2008 2009 2010e

MMm

etrictons

South African Steam Exports by Basin

Total Exports to Pacific Total Exports to Atlantic Total

Source: McCloskeys CoalReport


11/19

0

2

4

6

8

10

12

14

16

2004 2005 2006 2007 2008 2009 2010e

MMm

etrictonnes

Chinese Imports of Russian Coal

Met Steam Total Source: McCloskey's, DTE estimates


12/19

2009 Overview Oversupply

Price response

Chinese & Indian demand

Market shift Where We Are Now

Chinese restructuring

Chinese imports

Still weak demand in Atlantic Basin 2010 Outlook

Cautiously optimistic


13/19

Chinese mines are in desperate need of thoroughmodernization

Source: Bloomberg, CEIC, BPStatistical Review, chart by JP Morgan

Coal Miner Productivity China Total vs US Underground


14/19

Chinese imports have actually accelerated

Source: Bloomberg, CEIC, BPStatistical Review, chart by JP Morgan


15/19

Tightened global market in early 2010 Result of increased Chinese and Indian coal imports

If not for change in world coal flows, the marketwould still be in oversupply situation


16/19

China and India remain largest growth areasfor demand Governmental and monetary policies continue to

support this

China continues to restructure domestic coalmarket

West to East pull of coal likely to continue

Pacific Basin likely to outperform AtlanticBasin price


17/19

Coal likely to gain back market share inelectricity generation sector

North American & European demand will taketime to recover from high inventory levelsand recovering economies


18/19

Supply bottlenecks in key exporting countries(S. Africa, Australia) not alleviated in 2009and will continue in 2010 Insert timeline of RBCT build out


19/19

Significant changes to the global seaborne coalmarket in 2009big impact of China

China/India demand continue to be strong Chinese demand will be highly sensitive to international

prices in 2010 (highly price-dependent) Will depend on consolidation of Chinese coal industry

New coal flows established in 09 likely to persist

Pacific Basin prices remain stronger than Atlantic

Basin prices US and European prices recover slower

Supply bottlenecks will persist

2010 international thermal coal market outlook draft

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