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North Carolina Coal Institute Fall Education & Engineering Seminar International Markets Update U.S. Origin Coal October 24, 2013 Mid Pines, North Carolina 1

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Page 1: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

North Carolina Coal InstituteFall Education & Engineering Seminar

International Markets UpdateU.S. Origin Coal October 24, 2013

Mid Pines, North Carolina

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Page 2: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

2013 Market» Although the rate of growth is lower than previous» Although the rate of growth is lower than previous

years, year-on-year demand for seaborne coalcontinues to grow

» Customer requirements are changing• Due to the challenging state of the global economy, customers

are utilizing lower grade coking coals and thermal coals toare utilizing lower grade coking coals and thermal coals toreduce costs

» Pricing in the market is being driven byoversupply

» The Chinese economy, and demand for rawmaterials, is not as dismal as many believe

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Page 3: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Global population is concentrated in Asia

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Page 4: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Global Population

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Page 5: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

GDP Annual Growth (%) 2000-2012

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Page 6: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

GDP per Capita (current US$)Year to Year Change (%)Year-to-Year Change (%)

Note the YOY change in India

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Page 7: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

CAGR GDP per Capita 2000-2012 (current US$)

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Page 8: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

China GDP Growth Rates Annual Economic Contribution

The relationship between GDP growth rates andThe relationship between GDP growth rates and demand for imported raw materials is diminishing

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Page 9: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Seaborne Trade & Consumption Trends for Coal» Regional consumption of coal has changed significantly since

20002000

» Although coal’s portion of the energy mix may be declining inmature and developed economies, coal consumption ismature and developed economies, coal consumption isincreasing in emerging and developing countries

» Coal, as a low cost and reliable source of energy in theseemerging and developing countries is contributing toemerging and developing countries, is contributing toeconomic development and improved living standards for thepeople in these countries

» Investment in coal production, railway infrastructure, coalexport terminals, coal import terminals, and dry bulk carrierswill support the continued growth of coal consumption inth i d d l i t ithese emerging and developing countries

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Page 10: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Seaborne Coal DevelopmentSeaborne Coal Development1990 to 2013

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Page 11: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Seaborne Coal GrowthSeaborne Coal Growth2012 to 2013 (forecast)

2012 2013 % Change

Coking 272.7 290.7 6.6

Thermal 840.2 874.9 4.1

Total 1112.9 1165.6 4.7

11Tonnage expressed in millions of metric tons

Page 12: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Australia Seaborne Coal Export DevelopmentAustralia Seaborne Coal Export Development2000 to 2012

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Page 13: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Canada Seaborne Coal Export DevelopmentCanada Seaborne Coal Export Development2002 to 2012

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Page 14: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

China Seaborne Coal Export DevelopmentChina Seaborne Coal Export Development2000 to 2012

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Page 15: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Colombia Seaborne Coal Export DevelopmentColombia Seaborne Coal Export Development2000 to 2012

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Page 16: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Indonesia Seaborne Coal Export DevelopmentIndonesia Seaborne Coal Export Development2000 to 2012

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South Africa Seaborne Coal Export DevelopmentSouth Africa Seaborne Coal Export Development2003 to 2012

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Page 18: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

U S A Seaborne Coal Export DevelopmentU.S.A. Seaborne Coal Export Development2000 to 2012

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Page 19: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Evolution of seaborne trade flows of coalChange 2000 to 2012- Millions of tons

Region Asia-Pacific (ex China)

China Europe India North America

South America

Origin (export from)

Australia 70.54 60.68 -11.82 18.11 -3.78Canada 2.25 9.88 -2.16 0.83 -0.93 0.49Chi 41 56 1 58 0 92 0 58China -41.56 -1.58 -0.92 -0.58

Colombia 2.03 1.95 34.31 0.16 -1.72 6.97Indonesia 116.17 115.45 2.17 92.58 -0.41 -1.30

South Africa

8.61 12.73 -41.73 21.62 0.48 0.57

USA 9.90 9.12 35.86 6.16 -7.75 5.04

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Page 20: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Macro View Seaborne Market » Deja vu all over again:j g

» In the 70’s and 80’s coal producers increased productionto meet what was thought to be an ever growing demandof coal in Japan. Supply overpassed demand.

• The resulting over supply period lasted 20 years

Si 200 i i i d h US$ 0 Billi» Since 2005, it is estimated that US$50 Billion wasinvested in coal production, railway infrastructure, coalexport terminals, coal import terminals, and dry bulkp , p , ycarriers to support what was thought to be an evergrowing demand of coal from China. It appears supplyagain has overpassed demandagain has overpassed demand.

• Can the result be an over supply period lasting ?? years20

Page 21: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Macro View Seaborne Market (2)» Current market conditions influenced more by increasing

supply than demand. Supply has simply increased at afaster pace than the increase in demand

» Prices for thermal and met coals correcting steeply» Prices for thermal and met coals correcting steeplydownward

» Current pricing conditions will lead to a sharp and rapid» Current pricing conditions will lead to a sharp and rapiddecline in supply. Current prices are below cash costsfor all but the lowest cost mines

» Only the low cost mines / producers will manage throughthe correction

The swift decline in prices should accelerate the period» The swift decline in prices should accelerate the periodneeded for supply and demand to reach balance 21

Page 22: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

700

800

500

600

MM)

300

400

Metric

 Ton

s (M

100

200

M

0

00

2010 2011 2012 2013

Europe Americas Asia

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Page 23: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

68.3%80.0%

Thermal Supply (Pacific) ‐ % change 2010 to 2013

38.8%

28.9%

56.8%

40.0%

60.0%

18.2%

0.0%

20.0%

Russia Eastbound China Indonesia Pacific Australia South Africa Colombia WC North010 to 201

3

‐25.5%‐40.0%

‐20.0%

Russia Eastbound China Indonesia Pacific / India Bound

Australia Pacific/India 

Bound

South Africa Eastbound

Colombia Westbound

WC North America

% Cha

nge 20

‐73.1%‐80.0%

‐60.0%

‐100.0%

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Page 24: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Russia Eastbound

4% China3%

South Africa Eastbound

9%

Colombia Westbound

3%

WC North America

2%2010

Russia Eastbound

5% China1%South Africa 

Eastbound8%

Colombia Westbound

1%

WC North America

2%2011

Indonesia Pacific / India 

Bound

Australia Pacific/India 

Bound Indonesia Pacific / India

Australia Pacific/India 

Bound25%

Bound53%

26% Pacific / India Bound58%

Russia WC N th 2012

Russia E tb d

Colombia W tb d

WC North A i 2013Eastbound

5%China1%

South Africa 

Eastbound8%

Colombia Westbound

2%

North America

2%

2012 Eastbound5%

China1%

South Africa Eastbound

8%

Westbound2%

America2%

2013

Indonesia Pacific / India 

Australia Pacific/India Bound26% Indonesia 

Pacific / I di B d

Australia Pacific/India 

Bound26%

Bound56%

India Bound56%

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Page 25: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Australia Thermal Coal Exports LTM Comparison thru August 2013

+15.3%

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Page 26: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Indonesia Thermal Coal Exports LTM Comparison thru July 2013

+13.5%

+24 0%

13.5%

+7.1%+24.0%

-5.9%

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Page 27: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

South Africa Thermal Coal Exports LTM Comparison thru July 2013

-5.6%

-14.7%

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Page 28: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Benchmark & Index Pricing – Thermal Coal» In a oversupplied market, seaborne traded thermal coal

is trading at a discount to the established benchmarksis trading at a discount to the established benchmarks• Current physical transactions in Europe are priced at $2-$3/MT

discount to API2• Current physical transactions for South African coal in India are pricedp y p

at $3-$12/MT discount to the API4 plus quality adjustments for lowercalorific value

» Customers are shifting to lower quality coals i e» Customers are shifting to lower quality coals, i.e.calorific value ranging from 4200 GCV (7560 BTU) to, 5500 GCV (9900 BTU), and reducing the consumptionof coals with higher calorific value (and higher costs)of coals with higher calorific value (and higher costs)

» The Qinghuangdao Index, and the newly establishedAPI8 Index, are set by the price of Chinese domesticy pcoals

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Page 29: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Newcastle Weekly PricesNewcastle Weekly PricesPrompt Quarter/ US$/MT

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Page 30: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

South Africa Westbound

Oceania Westbound

10%

2010South Africa Westbound

11%

Oceania Westbound

8%2011

North Europe37%

Colombia/Ve

Westbound13%

North Europe32%

Colombia/Ve

US Eastbound

6%

/nezuela 

Eastbound34% US 

Eastbound11%

nezuela Eastbound

38%

S th O i South Oceania2013

North E

South Africa 

Westbound

11%

Oceania Westboun

d5%

2012

North E

South Africa 

Westbound

11%

Oceania Westboun

d4%

2013

Europe33%

US 

Colombia/Venezuela 

b d

Europe34%

US

Colombia/Venezuela 

Eastbound17%

Eastbound34%

US Eastbound

16%

Eastbound35%

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Page 31: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

300 0%

Thermal Supply (Atlantic) ‐ % change 2010 to 2013

243.2%

200 0%

250.0%

300.0%

100.0%

150.0%

200.0%

2010

 to 201

3

6.9%23.9%

1.8%0.0%

50.0%

% Cha

nge 2

‐50.6%

‐100.0%

‐50.0%

North Europe US Eastbound Colombia/Venezuela Eastbound

South Africa Westbound

Oceania Westbound

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Page 32: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Colombian Thermal Coal Exports LTM Comparison thru September 2013

-5.2%

-7.2%

+21.5%

-81.7%

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Page 33: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

API2 Weekly PricesAPI2 Weekly PricesPrompt Quarter/ US$/MT

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API4 Weekly PricesAPI4 Weekly PricesPrompt Quarter/ US$/MT

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800

900

600

700

MM)

300

400

500

Metric

 Ton

s (M

100

200

300M

0

2010 2011 2012

EU Other Europe C.I.S North America South America AsiaU Ot e u ope C. .S o t e ca Sout e ca s a

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250

Total Imported  metallurgical coal by region

200

)

100

150

ric Ton

s (M

M)

50

100

Met

0

2010 2011 2012 2013

EU Other Europe C.I.S. South America Asia

36

Page 37: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Others8%

2011Others10%

2012

Australia

USA27%

8%

Australia51%

USA26%

53%

Canada12%

51%

Canada13%

2013

Others11%

Australia52%

USA25%

Canada12%

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Japan Coking Coal Imports2008-2012

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Korea Coking Coal Imports2008-2012

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Australian Coal Producers “Fighting to protect their markets”

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Major Seaborne Coking Coal Exports Comparison FY2011 vs. FY2012

+5.4%

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Page 42: North Carolina Coal Institute Fall Education & Engineering Seminarthecoalinstitute.org/ckfinder/userfiles/files... · 2013-11-04 · North Carolina Coal Institute Fall Education &

Australia Coking Coal Exports Comparison FY2011 vs. FY2012

+16%

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Australia Coking Coal Exports LTM Comparison thru August 2013

+12.2%

+11.2%

+13.9%

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U.S. Coking Coal Exports LTM Comparison thru June 2013

-8.1%

-41.4%

-8.2%

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Benchmark & Index Pricing – Coking Coal»In a oversupplied market, less than 10% of

b d d ki l i i d hseaborne traded coking coal is priced at the"headline” benchmark price

»Customers are shifting to shorter term pricing• Annual > Quarterly > Monthly > Spot

»Indices are based on thinly traded markets andare struggling to accurately reflect physicaltransactionstransactions

»Increased pricing volatility resulting from thetransition to different pricing methodologytransition to different pricing methodology

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Seaborne Coking Coal Benchmark Pricing

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SSummary» The global market for both coking coal and thermal

coal continues to grow but is challenged by currentcoa co t ues to g o but s c a e ged by cu e tmarket pricing

» The evolution of pricing models, and changing qualityp g , g g q yrequirements, will cause coal producers to becomemore short term focused

» The current oversupplied market, and low prices, willeventually force coal producers to cut production andreduce investment in new projectsreduce investment in new projects

» Low cost producers will survive and benefit from theadjustment in the marketplaceadjustment in the marketplace

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G d N / B d N StGood News / Bad News Story

»The good news is that the market seems toghave “bottomed”. Market prices for cokingcoal and thermal coal have stabilized. Sellersare seeing the first signs of improved pricing

»The bad news is that the market, and the,industry, are likely to remain in this low pricedenvironment until annual demand growthabsorbs the excess production currently in themarket and the projects that are in the finalstages of developmentstages of development.

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Credits» John T. Boyd Company

» Financial Times

I t ti l M t F d» International Monetary Fund

» Macquarie Research

McCloske Gro p» McCloskey Group

» SSY Research

» T Parker Host» T. Parker Host

» World Bank

» World Steel Dynamics» World Steel Dynamics

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Contact Info

Ernie ThrasherErnie Thrasher

Xcoal Energy & ResourcesgyPhone: +1 (724) 520-1630E-mail: [email protected]: www.xcoal.comWeb: www.xcoal.com

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