overview of thermal coal markets - fossil fuel€¦ · 2007 2009 2011 2013 2015 2017 2019 2021 2023...

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Delivering commercial insight

Overview of Thermal Coal MarketsPresented to Coaltrans Amsterdam

Jeff Watkins

Chairman of Coal

October 19, 2010


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© Wood Mackenzie 2

Global coal trade is set to grow significantly

during the next several decades.

However, this growth is primarily concentrated in

the Pacific Basin.

In terms of seaborne trade, India is expected to

overtake China as it has insufficient coal reserves

available for use in power generation.

Nearly all major coal-consuming countries in Asia

are expected to experience significant demand

growth with the notable exception being Japan.

As a result, large-scale investments will be

required in Australia and Indonesia to meet long

term demand. Indeed, other suppliers will also be

called upon, particularly southern Africa.

International Market

Outlook


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© Wood Mackenzie 3

Rapid economic recovery in 2010, offset by minor slowdown in 2011

Slow pace economic recovery in Europe

Source: Wood Mackenzie


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© Wood Mackenzie 4

Seaborne global thermal and metallurgical coal demand

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2009 2011 2013 2015 2017 2019 2021 2023 2025

Mt

Thermal

Metallurgical



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© Wood Mackenzie 5

0

200

400

600

800

1000

1200

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Mt

Europe Japan Rest of the World

Global thermal seaborne demand growth

37%

24%

Stagnant demand

due to recession



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© Wood Mackenzie 6

India

China

Japan

South Korea

Taiwan

Malaysia

Thailand

Philippines

Hong Kong

0

100

200

300

400

500

600

700

800

900

2010 2012 2014 2016 2018 2020 2022 2024

Mt

Pacific Basin thermal import coal demand

China surpasses Japan

India surpasses China



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© Wood Mackenzie 7© Wood Mackenzie 7



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© Wood Mackenzie 8

0

20

40

60

80

100

120

140

160

180

200

220

2010 2012 2014 2016 2018 2020 2022 2024

Mt

Other

South Africa

Mozambique

Indonesia

Colombia

India: Thermal imports by country of origin

• South Africa swings away

from Europe into India

• South Africa limited growth

capacity

• Dependent on the development of

additional Indonesian reserves and

• Indonesian domestic demand

growth



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China coal balance


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China coal imports


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© Wood Mackenzie 11

-

1,000

2,000

3,000

4,000

5,000

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

Mil

lio

n t

on

nes

-

1,000

2,000

3,000

4,000

5,000

Mil

lio

n t

on

nes

Thermal Coal Exports

Thermal Coal Imports

Thermal Coal Production for Domestic Use

Thermal Coal Demand

Source: Wood Mackenzie; Coal Market Service; China Sept-2010

Thermal coal demand growth to nearly 5 billion tonnes

Source: Wood Mackenzie; Coal Market Service; China, Sept-2010

Mil

lio

n t

on

nes

Mil

lio

n t

on

nes


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0

20

40

60

80

100

120

140

160

180

200

220

2010 2012 2014 2016 2018 2020 2022 2024

Mt

Other

Vietnam

Russia

Indonesia

Australia

China: Thermal imports by country of origin


Russia and Australia stepping up to

meet long term demand growth


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0

20

40

60

80

100

120

140

160

180

200

220

2010 2012 2014 2016 2018 2020 2022 2024

Mt

Other

Indonesia

Australia

Japan: Thermal imports by country of origin

Coal demand capped by growth in gas & nuclear



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0

50

100

150

200

250

300

2010 2012 2014 2016 2018 2020 2022 2024

Mt

WesternEurope

Western Asia

SouthernEurope

South

America

NorthernEurope

North

America

EasternEurope

C. America &

Caribbean

Africa

Atlantic Basin thermal import coal demand

USA rising gas price effect

Increase in Germany and

Netherlands



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Seaborne global thermal coal supply

Australia and Indonesia dominate the export market, by 2025 will represent 59% of the

seaborne thermal supply.

0

200

400

600

800

1,000

1,200

2009 2011 2013 2015 2017 2019 2021 2023 2025

Mt

Other

Venezuela

Canada

USA

China

Vietnam

South Africa

Colombia

Russia

Australia

Indonesia

36%

26%`

• Secures market share based on price

• Risks of exhausting low cost reserves

• Export supply growth dependant on domestic

consumption growth INDONESIA



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0

10

20

30

40

50

60

70

80

90

100

110

120

2009 2011 2013 2015 2017 2019 2021 2023 2025

Mt

Atlantic Basin Supply

into Pacific Basin

Pacific Basin Supply

into Atlantic Basin

Inter-basin thermal coal flows

Asia consistently pulls Atlantic

supply mainly from South Africa

In the short term

Pacific supply will remain

in the Asian Market



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Price Spreads: Shifting Incentives - netback price calculations

from China

$12.0$11.98

$14.7

1. Real 2010 US$ / tonne

2. Ocean freights are

estimated averages

3. Basis 6000 Kcal/kg NAR

4. Red figures are calculated

netback prices from

China

$14.6

$13.0

US$/tonne

2010 86.1

CIF ARA

CIF Japan/China US$/tonne

2010 110.3

US$/tonne

2010 95.5

FOB Newc

CIF IndiaUS$/tonne

US$/tonne

2010 87.9

FOB RB

US$/tonne2010 86.0

FOB Colombia

US$/tonne

2010 73.1

FOB USA HR

$24.3

2010 100.5

2010 88.5

India/China effect have increased R.B. price $14/tonne

2010 100.5

Gap of $14.4/tonne

2010 87.5

2010 71.5

Global Coal Phys Price

2010 74.1

Global Coal Phys Price

Netback from ARA Coal Phys Price

Source: Wood Mackenzie; CMS Thermal Trade


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Will infrastructure expansions in Australia and southern Africa keep

pace with increasing demand?


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PWCS in Newcastle continues to underperform

Although nameplate capacity is 113Mt, 2010 shipments will be under 100Mt despite orders for

107Mt of business – why?

• Reliability problems on the coal chain

• Weather

The next phase of expansion is progressing at a cost of A$670 million – will take nameplate

capacity to 133Mt by 2012

NCIG opened in May and has secured financing for their Stage Two expansion which will take

capacity from 30Mt to 53Mt at a cost of A$900 million


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Newcastle export coal capacity

Source: Wood Mackenzie: Coal Supply Service


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Wiggins Island in Queensland could play a major role in

Australian thermal exports

We expect Phase 1 development (26Mt capacity) by 2015 with all production serviced from

Bowen Basin mines and projects due to the uncertainty surrounding the Surat Basin Rail Link

Actual mine capacity to feed WICET Phase 1 is uncertain due to several factors:

• Operational risk – deep mines in the Rangal coal measures

• Rail uncertainty – expansions on Blackwater system will be required but no firm plans for

construction at this time

• Tax reform – causing investment uncertainty

Phase 2 expansion to 50Mt capacity is therefore highly uncertain

Thermal coal from the untapped Galilee Basin could add significant tonnage to the export

market, however development of this basin remains highly uncertain:

• New ports or expansion of Abbot Point is required

• The status for Hancock’s proposed rail line from Alpha to Abbot Point suffered a major blow

when it lost “significant project” status from a recent court ruling


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Queensland export capacity



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Mozambique’s coal export infrastructure



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Richards Bay export coal capacity



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South Africa’s exports continue to be constrained by rail

constraints

Wood Mackenzie expects South Africa’s nominal port capacity to increase from 99 Mtpa in

2010 to 104 Mtpa by 2015.

The increase in port capacity has been driven by the Richards Bay Coal Terminal’s (RBCT)

Phase Five expansion from 76 Mtpa to 91 Mtpa, completed in May 2010.

South Africa’s exports are dominated by the RBCT, which will account for 92% of the

country's total coal export capacity in 2010.

We anticipate expansions on a much smaller scale, for the Matola Coal Terminal (TCM) and

Dry Bulk Terminal (DBT), over the forecast period.

Historical coal exports suggest that actual export port capacities are likely to fall well below

nominal capacities, due to rail constraints. We expect total nominal rail capacity to reach 91

Mtpa by 2015, 13 Mtpa below port capacities, expanding to 101 Mtpa by 2019


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Mozambique’s infrastructure capacity



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The Port of Beira

We expect the 575 kilometre Sena railway line, linking the town of Moatize to the Port of Beira,

to be refurbished with a capacity of 8 Mtpa by 2010.

An interim measure has been established to upgrade the existing terminal at Beira from 1

Mtpa to 6 Mtpa, to allow exports to begin by 2011.

Beira is a shallow port and will be dredged to accommodate vessels of up to 40,000 tonnes,

increasing the draft of the port to eight metres. But transhipment is required to load panamax

and capesize vessels.

We expect a new terminal to be built at Beira, increasing its capacity from 6 Mtpa in 2013 to 18

Mtpa by 2017.

The capacity on the Sena railway line is expected to be increased in line with the port’s

capacity.


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The Port of Nacala

The Port of Nacala is regarded as the best deepwater port on the east African coast. It is

under utilised, and has space for development.

Nacala is located 1,075 kilometres from the Moatize Coal Basin and will require a new railway

line to be built from the town of Moatize, across southern Malawi, to link up with the Malawi-

Nacala line.

We expect the Port of Nacala’s capacity to increase from 5 Mtpa in 2018 to 22 Mtpa by 2024.


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Conclusions

The thermal seaborne market will continue to be a tale of two basins (Atlantic vs. Pacific) over

the next decade

Continued investments in infrastructure projects in Australia and Southern Africa will be

needed in order to meet the strong Asian demand for thermal coal – there will continue to be

periods of tight supply as these projects struggle to move forward

Colombian exports to Asia will continue over the forecast period

Exports of higher sulfur coals from the US Illinois Basin and Northern Appalachia will

continue to find their way into Atlantic basin markets

Although many challenges must be overcome, in the long term it is probable that one or two

new west coast ports will be developed to facilitate PRB shipments into the Pacific market


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Wood Mackenzie Disclaimer

This presentation has been prepared by Wood Mackenzie Limited for delivery at Coaltrans

World in Amsterdam on October 19, 2010. It has not been prepared for the benefit of any

particular attendee and may not be relied upon by any attendee or other third party. If,

notwithstanding the foregoing, this presentation is relied upon by any person, Wood

Mackenzie Limited does not accept, and disclaims, all liability for loss and damage suffered

as a result.

The information contained in these slides may be retained by attendees. However, these

slides and the contents of this presentation may not be disclosed to any other person or

published by any means without Wood Mackenzie Limited's prior written permission.


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overview of thermal coal markets - fossil fuel€¦ · 2007 2009 2011 2013 2015 2017 2019 2021 2023...

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