cru consulting a division of cru international limited international perspective us$ / nickel / coal...
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CRU CONSULTING a division of CRU International Limited
International Perspective
US$ / Nickel / Coal
ANDI - Colombia Genera
February 2015
Chancery House
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London
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UK
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Fax: +44 20 7903 2172
517, Tower 2
Bright China Chang An
Building
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Las Condes
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Chile
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USA
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India
Tel: +91 96 1947 5403
Fax: +91 22 6687 5758
CRU CONSULTING
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Preface
This report is supplied on a private and confidential basis to the customer. It must not be disclosed in whole or in part, directly or indirectly or in any other format to any other company, organisation or individual without the prior written permission of CRU International Limited.
Permission is given for the disclosure of this report to a company’s majority owned subsidiaries and its parent organisation. However, where the report is supplied to a client in his capacity as a manager of a joint venture or partnership, it may not be disclosed to the other participants without further permission.
CRU International Limited’s responsibility is solely to its direct client. Its liability is limited to the amount of the fees actually paid for the professional services involved in preparing this report. We accept no liability to third parties, howsoever arising. Although reasonable care and diligence has been used in the preparation of this report, we do not guarantee the accuracy of any data, assumptions, forecasts or other forward-looking statements.
© CRU International Limited 2015. All rights reserved.
CRU CONSULTING
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Who is CRU?
LondonPittsburgh
Santiago
Sao Paulo Mumbai
Sydney
Beijing
CRU Analysis CRU Consulting CRU Events
CRU CONSULTING
• US$ - Continued dollar strength
• Nickel – Indonesia export ban & NPI
• Coal – China still key; Colombia a competitive producer
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Presentation topics
CRU CONSULTING
5CRU believes nickel has the best short term prospects
Nickel,
Sulphuric Acid, Tin, Palladium, Bauxite, Sulphur, Cobalt
Zinc, Silicon, Molybdenum,
Chrome Ore, Alumina, Aluminium, Phosphate DAP,
Ferrochrome, Metalics Scrap, Silico-Manganese,
Lead, Platinum,
Ammonia, Thermal Coal, Oil,
Met Coal, Urea, Phosphate Rock, Copper, Potash,
Manganese, Gold,
Iron Ore Silver
Hot> 15%
Warm5% to 15%
Cold-5% to 15%
Freezing< -15%
Mild0% to 5%
Cool0% to -5%
2015 annual average price forecast (nominal $ or benchmark) versus 2013 average actual prices
CRU CONSULTING
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50
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58
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Sep-13 Dec-13 Mar-14 Jun-14 Sep-14
US ChinaEurozone Other emergersJapan
Manufacturing PMIsDiffusion index. In theory 50 = no change
Data: Markit, CRU
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USA’s upswing and China’s slowdown are causing currencies to realign
Global economic performance is diverging
• Plunging oil prices are net positive for the outlook
• Modest economic recovery in 2015 – US is key
• The $ is going from strength-to-strength
• Significant uncertainty and risk
• Upside: Oil prices low, US take-off, Indian strength
• Downside: China crash, Eurzone woes & ‘Grexit’, Geo-politics: Russia, Mid-East, oil stress
CRU CONSULTING
The US dollar and commodity prices have moved inversely over the years
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0
20
40
60
80
100
120
14050
100
150
200
250
300
350
400
450
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
CRB Commodity Index (LHS)
Narrow Dollar Index (Inverted - RHS)
Commodity Prices vs. the US Dollar
Jan 1973 = 100
Data: Haver Analytics, US Federal Reserve, CRU
Dollar Strengthens
• ‘As US dollar soars, commodities get
crushed’ – CNBC
• ‘Copper slumps to 5-1/2-year low on
strong dollar’ – Reuters
• ‘Strong U.S. Dollar to challenge global
fertilizer demand’ – Capital Press
• ‘Dollar rally only just getting
started...expect more downward
pressure on commodity prices’ – FT
CRU CONSULTING
CRU CONSULTING
Why might prices and the USD move inversely?
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DEMAND FACTORS
• Foreign demand for commodities down when USD is strong
• USD-denominated assets more expensive
• ‘Imported inflation’ may lead to tighter monetary policy
SUPPLY FACTORS
• Strong dollar makes revenues look even better against local costs
• Greater profit margin
• Producers see incentive to increase supply where possible
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Dollar moves are just one factor pushing prices around
Market dynamics differ for each commodity. Dollar impacts on a commodity’s price will
vary.
CRU CONSULTING
CRU CONSULTING
Dollar strength to continue
10
60
70
80
90
100
110
120
130
140
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
Broad Dollar Index
Pre-2008 average
Real Broad Dollar Index
March 1973 = 100
Data: US Federal Reserve, CRU
By broadest measure, US dollar up by > 9% since last summer
CRU CONSULTING
CRU CONSULTING
Nickeloutlook
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CRU CONSULTING
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
China
World ex China
Nickel market deficits:Stainless steel growth to outpace nickel supply
-100
-50
0
50
100
150
200
250
Global Ni balanceCAGR
3.4%
CAGR
15.2%
‘000 t
Apparent consumption stainless steel flat products, million tonnes
CRU CONSULTING Data: CRU, LME
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CRU CONSULTING
Will Indonesian ore ban bring NPI boom to an end?
Background
• 2005-2009 NPI industry emerges
• RKEFs emerge as lowest cost producers using
high-grade laterite from Indonesia
• 2013 Imports >40Mt ore from Indonesia
• January 2014 Indonesia banned export
unprocessed nickel products (<4% Ni)
The Future
• New ore sources
• NPI costs rise in China ; plant closures
• Indonesian NPI – lower cost; can volumes be
sustained?
• Can Philippines sustain current ore output?0.0
1,000,000.0
2,000,000.0
3,000,000.0
4,000,000.0
5,000,000.0
6,000,000.0
7,000,000.0
8,000,000.0
9,000,000.0Philippines
Indonesia
How has the industry responded? Philippine exports increase
Data: CRU, LME
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CRU CONSULTING
CRU CONSULTING
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Ore key driver of NPI costsBusiness cost breakdown by technology type, 2014, %
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
RKEF Hydromet CuNiSulphide Pyro
Other
Energy
Raw Materials
Data: CRU
CRU CONSULTING
Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 140
50
100
150
200
250
LME Nickel
10% NPI/t
1.7-1.8% Ni ore
1.4-1.6% Ni ore
Monthly average prices, September 2012 = 100
Ore prices have risen with the ban; NPI prices have not
Data: CRU, LME
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CRU CONSULTING
Cost curve for the nickel industry (business costs), 2014, US$/tonne
Cumulative production, ‘000 tonnes
VB
C B
usi
nes
s C
ost
s,
$/t
nic
kel
Cerro Matoso
Chinese NPI producers occupy upper end of the cost curve in 2014 due to higher ore costs
Data: CRU
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CRU CONSULTING
Coaloutlook
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CRU CONSULTING
A changing thermal coal industry
Data: CRU Thermal Coal Market Outlook
0
50
100
150
200
250
300
350
400
450
2011 2012 2013 2014
Indonesian exports Australian exports
Russian exports Columbian exports
South African exports US exports
Thermal coal export volumes, Mt
Data: CRU Analysis.Data: CRU Analysis.
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2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
050
100150200250300350400
0%1%2%3%4%5%6%7%8%
yoy change (mt)
Thermal coal consumption
Q1
13
Q2
13
Q3
13
Q4
13
Q1
14
Q2
14
Q3
14
Q4
14
50
60
70
80
90
100
Newcastle, 6,000 kcal/kg spot US$/t FOB
CRU CONSULTING
CRU CONSULTING
The South-East coastal area:
• consumes ~40% of China's total power
• generates ~35% of China’s total power
• produces 4% of China's total coal
Coastal coal trade influenced by:
Demand factors:– Interprovincial transmission
– Substitution & generation mix
– Underlying demand intensities
Supply factors:
– Local provincial production and inland supply
– Seaborne imports
– Domestic north-south coastal trade
Seaborne thermal markets integrated w/ China’s SE provincesProvincial analysis highlights both opportunities & threats for seaborne
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XINJIANG
QINGHAI
INNER MONGOLIA
GANSU
NINGXIA
SHAANXIXIZANG
SICHUAN
CHONGQING
YUNNAN
GUIZHOU
GUANGXI
HAINAN
HUNAN JIANGXIZHEJIANG
FUJIAN
GUANGDONG
MACAU
SHANGHAI
JIANGSU
ANHUIHUBEI
HENAN
SHANXI
SHANDONG
HEBEI LIAONING
JILIN
HEILONGJIANG
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-600-500-400-300-200-100
0100200300400
Power surplus/(deficit) by Region Bn Kwh
East West North East Middle
Data: CRU
CRU CONSULTING
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India set to overtake China as world’s largest importer
0
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
China India
Seaborne imports, Mt
Data: CRU Analysis.
CRU CONSULTING
0
2,000
4,000
6,000
8,000
kcal/kg – exported coal average energy content
Colombian coal production:Above average quality & below average costs
Data: CRU Thermal Coal Cost Model
Australia ChileColombia
Indonesia
MozambiqueRussia
South Africa
United StatesVenezuela
Vietnam0
102030405060708090
2014 Business Costs (CFR US$/t, nominal)
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CRU CONSULTING
Indonesian & Colombian supply fill most of bottom half – Russian, US & some Australian supply occupy high end of cost curve Seaborne CFR Business Costs – 2014 (US$/tonne)
Data: CRU Thermal Coal Cost Model
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Cumulative Production (Mt)
CRU CONSULTING
Industry margins down from 2012 despite cost decreases. Colombia & Indonesia: only 2 major exporters with margins above global averageWeighted global and regional US$/t margins, 2012-2014
Data: CRU Thermal Coal Cost Model
2012 2013 2014-30
-20
-10
0
10
20
30
40
50Australia
Colombia
Indonesia
Mozambique
Russia
South Africa
United States
Vietnam
World average
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CRU CONSULTING
Nearly 40% of seaborne production sold at a loss in 2014
Margins by operation US$/t, 2014
Data: CRU Thermal Coal Cost Model
(+) margins
(-) margins
Cumulative Production (Mt)
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CRU CONSULTING
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Zinc, Nickel, Tin, Palladium, Sulphuric Acid, Cobalt, Bauxite, Alumina, Aluminium, Molybdenum, Thermal Coal, Chrome Ore, Platinum,
silicon,
Ferrochrome, Silico-Manganese, Lead, Manganese, Urea, Met Coal,
Oil
Phosphate DAP, Copper,
Metalics, Scrap, Potash, Ammonia,
Phosphate Rock, Sulphur
Gold, Iron Ore, Silver
Hot> 15%
Warm5% to 15%
Cold-5% to 15%
Freezing< -15%
Mild0% to 5%
Cool0% to -5%
Nickel & Thermal Coal set for strong price increases over medium term2018 annual average price forecast over 2013 average actual prices
CRU CONSULTING
Taylor Shively – CRU Base Metals Consulting Manager
+56 2 2231 3900
Marcio Goto – CRU Gerente Regional América Latina y el Caribe
+55 11 5051 8124 / cel.: +55 11 997 264 466
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Thank You
CRU CONSULTING a division of CRU International Limited
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By and Co-Products
Cobalt, Gold, Lead, Moly, PGMs, Silver, Uranium, Zinc
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