/1

TSI is a specialist pricing service focussed on the ferrous market only.

Our prices are produced using spot market transaction data: a rigorous 21st

century approach.

The indexes TSI produces are:

- Independent & Neutral

- Transparent & Verifiable

- Free From Subjectivity

We sample the whole supply chain to ensure a representative buy/sell balance

of data providers is contained in every volume-weighted price we produce.

New owner, same mandate. Operating since 2006, our owner (SBB Group) was

acquired by Platts in 2011. Nevertheless, TSI continues to operate as a

operationally separate, independent entity within Platts.

Background to The Steel Index (TSI)

Sector-specific reference prices for a volatile market.

For physical markets (index-linking)

For derivative markets (hedging)

FOB Australia

CFR China 29/9/14

TSI Premium Metallurgical Coal Indices

Iron Ore

Coking Coal

Scrap

Steel

An international pricing service, dedicated

solely to ferrous markets. Founded in 2006,

spearheading frequent pricing in the sector.

Pioneer of data-driven approaches to index

production. We use actual physical spot

market transactions to produce indices.

A confidential service: Non-Disclosure

Agreements signed with index participants,

enabling price data to be reported, with no

fear of disclosure to the wider market.

Proponents of a methodology designed to

maximise participation, minimise

opportunities for manipulation and remove

subjectivity from the process.

Acquired in 2011, TSI continues to operate as

an operationally distinct group within Platts.

What is The Steel Index (TSI)?

TSI 62% Fe Iron Ore, CFR Tianjin.

TSI Turkish 80:20 Ferrous Scrap, CFR Iskenderun

TSI North European HRC, ASEAN HRC

TSI FOB Australia, CFR China

Buyers and sellers use our indices to negotiate spot sales and in supply agreements.

TSI’s prices are widely used by exchanges as the settlement for swaps, options and

futures contracts used in price-risk management across the ferrous complex.

Users of TSI prices

Over 550 data providers deliver their actual

transaction data to TSI on a confidential basis.

Our methodology involves non-standard

products being normalised to common TSI

index specifications.

Quality adjustments are given a quantifiable

value, which is applied to the Delta between

product specifications and the relevant TSI

index specification.

TSI 62%

MNP

SSFG

PB fines

TSI JM25 Premium Coking Coal

Hail Creek

German Creek

Peak Downs

TSI price production process

- Metallurgical coal, a brief history. - Market Update - The indices - Correlations - Changes to Paper Markets

-100%

-50%

0%

50%

100%

150%

200%

$0

$50

$100

$150

$200

$250

$300

$350

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% Change year-on-year (RHS) Hard Coking coal price US$/tonne, FOB Australia (LHS)

Coking Coal

-20%

0%

20%

40%

60%

80%

$0

$50

$100

$150

$200

$250

$300

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

% Change y-on-y Iron Ore US$/t FOB Brazil

Iron ore

Death-knell sounds for ‘benchmark’

Volatility in the market after decades of sluggishness encouraged the abandonment

of annual pricing for both iron ore and coking coal.

Source: SBB/TSI

0

50

100

150

200

250

300

350

20

04

20

05

20

06

20

07

20

08

20

09

20

10

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

11

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

12

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

13

Q1

20

14

Q2

20

14

Q3

20

14

Hard Coking Coal contract prices

Annual prices gave way to quarterly prices in 2011... Almost 4 full years of quarterly

prices followed. Now, supply is split between those offered term (quarterly), and not.

‘Quarterly’ divides suppliers…

BHP exits quarterly and monthly term pricing.

Source: SBB/TSI

-45

-25

-5

15

35

55

75

95

100

110

120

130

140

150

160

170

180

Contract Prices Spot Minus Quarterly(RHS) TSI Spot Premium HCC prices

‘Term’ buyers rue a cost disadvantage to ‘spot’ buyers. Quarterly buyers pay an

average premium of S$17.5/t over spot, per month over this period. But…buyers can

get closer exposure to spot pricing and lock supply by indexing monthly deals.

US$

/t US$

/t

…Quarterly divides buyers too

Source: TSI

/9

Changes to Physical Sales Terms

Monthly Quarterly

Spot Term

Indexed Indexed FOB CFR

A confusing mosaic of concurrent selling options became prevalent for some time.

This optionality/complexity is typical of markets in transition; as is rationalisation.

TSI anticipates optionality to be rationalised to two offers:

1) Index-linked, or spot.

2) FOB loading or CFR China discharge

Indexed Spot

FOB CFR

/10

Changes to Risk Management

New options in risk management. SGX launches two contracts in August 2014.

FOB Australia

FOB Australia FOB Australia FOB Australia CFR China

Launch 2011 Launch 2011 Launch Aug ‘14 Launch Aug ‘14

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2011 2012 2013 2014 to Sept

CME SGX

ton

ne

s

Source: TSI/SGX/CME

- Metallurgical coal, a brief history. - Market Update - The indices - Correlations - Changes to Paper Markets

/12

Prices Depressed, market evolving

Whilst prices are off their lows, they have not seen any meaningful bounce.

Despite moribund price action, the market has been far from boring over 2014.

What has quietly emerged (or been cemented) is the existence of two separate world

coking coal markets, each characterised by fundamentally different structures,

dynamics and prices: FOB & CFR.

Both see vibrant spot market activity and whilst there is (trader-driven) interplay, there

is separation too.

/13

CFR still the most liquid single buyer

Source: TSI

CFR spot transactions distinguish China as the largest single country sourcing spot.

In context, it takes the rest of the world’s spot buying as a bloc to achieve near parity

with China’s individual spot demand.

Over US$700 million of CFR spot trades have been reported to TSI so far in 2014 and

data provider numbers are growing strongly.

100

120

140

2-Jan-14 2-Feb-14 2-Mar-14 2-Apr-14 2-May-14 2-Jun-14 2-Jul-14 2-Aug-14 2-Sep-14

FOB spot transactions have increased substantially over the course of 2014.

Over US$535 million of FOB spot trades have been reported to TSI so far in 2014.

Normalised FOB transaction Normalised FOB bid/offer TSI Premium, FOB

FOB Index 2014

Recorded Premium Coal transactions

FOB Sales*

CFR Sales*

Number of FOB transactions reported to TSI

outweigh CFR transactions…just.

Absolute numbers of spot premium coal

sales are fairly balanced between FOB &

CFR (though many FOB buys are surely

headed to China)…

Jan Feb Mar Apr May Jun Jul Aug Sep

FOB CFR

• Double counting excluded

(i.e. when both sides of

trades recorded).

2014 YTD Transactions

CFR Loading Volumes FOB Loading Volumes

Mean Load: 56,000t Mean Load 80,000t

…But premium CFR transactions outmuscle FOB ones in terms of volume. The average

CFR shipment is substantially larger than FOB, with the latter often taking part-

shipments or even hold shipments. That being said, the trend over 2014 in FOB sales has

been towards larger shipments, with the number of smaller sales reducing each quarter.

Size of recorded transactions

/16

CFR Market changing, again

Source: TSI

Reduced costs at Chinese mills have made importers there increasingly discriminating

(on price). The gap between mid-vol and low vol (under 21) has yawned wide over 2014.

Vo

lati

le M

atte

r

17

19

21

23

25

27

67 68 69 70 71 72 73 74

Coal Brand Characteristics

Goonyella

Oaky Creek

Peak Downs

Illawarra

Saraji

Elkview

German Creek

TSI JM25

Standard

Premium

Blue Creek

Wollombi

Goonyella C

N. Goonyella

Oaky Creek

Hail Creek

Peak Downs North

Coke Strength After Reaction (CSR) Brand Blend TSI JM25 Premium Hard Coking Coal Index Specification

Mid

-Vo

l Lo

w-V

ol

Index- permissible range

CFR H1 2014

Brands Blends

CFR H2 TD 2014

Brands Blends

CFR 2013

Brands Blends

CFR blend sales rising importance

Increasing buyer price-sensitivity and supplier competition with Chinese-produced

metallurgical coal has encouraged blended ‘brand’ product volumes to grow in CFR

markets, as well as in FOB ones.

Source:: TSI

-14

-12

-10

-8

-6

-4

-2

0

Australia USA

BMA Glencore Peabody Anglo Vale

Arch Alpha Cliffs Consol Walter

Supply reduction biting (for now)

Cost reductions near their end : cost curve has flattened after 5 rounds of cuts.

Australian supply reductions make the news, but 2/3rds of production profitable. For

each tonne removed, a greater quantity is slated to replace it in the next two years.

Supply Reductions 2012-2014

Source: TSI

Source: CEIC

Chinese supply stickiness…

…A downside surprise to seaborne suppliers. The “China price” is the envy of other

importers around the world, who find themselves unable to replicate it. Price achieved

due to widely available alternative domestic supply.

Not only is that supply sticky, blending is continuously improving to create better coke.

Whilst around 20% of Chinese battery capacity is underutilised, scrapped coke export

taxes in Dec ‘12 saw exports rise from 1mt, to 4.6mt in 2013 and an anticipated 7mt in

2014. Ovens broadly sited inland, so rising coke exports no boon to seaborne suppliers.

- 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 900,000

1,000,000Chinese Coke Exports

ton

nes

...but substitutes push back Imports press in...

Seaborne

Supply

Port & Mill stocks

Overland Imports

Domestic Supply

What defines the CFR market?

Seaborne supply faces major headwinds to penetrating the Chinese market; 2 of which are

largely absent from FOB buyer’s markets.

Discriminatory pricing does not exist for FOB buyers: rather, CFR China importers have

significant alternatives in the form of deeper inventory, domestic supply and neighbouring

sources of alternatives that FOB buyers simply do not possess.

Chinese Demand

Globally, miners incentivised to spread costs over more tons (max. production).

Domestic suppliers 'all in ', no retreat possible: overseas ones have overcapacity & take or pay discourages withdrawal.

SUPPLIERS: WEAK

SUBSTITUTES: HIGH

NEW ENTRANT RISK: LOW

CUSTOMERS: STRONG Plentiful substitutes allow price-sensitive procurement stance.

No impatience to consume: few ill effects to delaying purchasing over last 2 years.

New supply already allocated/in commissioning a disincentive to further additions, along with current pricing.

Demand ex-China not sufficient to absorb available tons post- expansion creep.

Mid-vol market oversupplied.

Competitors abound.

Primarily supply substitutability (i.e. not FINEX/Scope 21): Domestic, US, Canadian, Indonesian, Mongolian, African.

Efficiency (PCI, pet coke, blending)

COMPETITIVE RIVALRY: HIGH

CFR market structure globally unique

China is a ‘one-off’ world market, fully deserving a dedicated index to track price movements.

- Metallurgical coal, a brief history. - Market Update - The indices - Correlations - Changes to Paper Markets

FOB

CFR

FOB & CFR Markets

Single-Origin Coals (Australia)

International Supply Competition Price set by bid competition

Multiple-Origin Coals (Africa I USA I Canada I Australia I Indonesia)

International supply competition Price set by import vs substitute prices

TSI produce 2 premium coking coal indices to account for different markets:

• FOB Australia (Premium Hard Coking Coal): historically over 50% of global supply

• CFR China (JM25 Premium Hard Coking Coal): historically over 50% of spot liquidity

CFR still by far the most liquid single destination

seaborne coal buyer

FOB permissible brands

Saraji

German Creek

Peak Downs Hail Creek

Goonyella

Illawarra

Moranbah North

North

Goonyella

Oaky Creek

Oaky North

Peak Downs North

Wollombi

Goonyella “C”

Riverside

FOB

Pricing Point: FOB East Coast, Australia • Minimum Lot Size: 20,000 metric tonnes

• Particle Size: Particle size below 55mm for at least 90% of the cargo

• Transport: Bulk Shipment

• Timing: Loading within 60 days of transaction

• Payment: At Sight

• Currency/Units: US$ per metric tonne

Diverse coal brands from a

number of producers

characterise Australian premium

hard coking coal supply.

CFR permissible brands

Saraji

German Creek

Peak Downs

Blue Creek Elkview

Goonyella

Illawarra

Moranbah North

North

Goonyella

Oaky Creek

Oaky North

Peak Downs North

Premium Standard

Wollombi

Goonyella “C” Hail

Creek

Pricing Point: CFR Jingtang Port, China

• Minimum Lot Size: 20,000 metric tonnes

• Particle Size: Particle size below 55mm for at least 90% of the cargo

• Transport: Bulk Shipment

• Timing: Loading within 60 days of transaction

• Payment: At Sight

• Currency/Units: US$ per metric tonne

CFR

Chipanga

The CFR market is characterised

by drawing from an even wider

pool of globally supplied

premium hard coking coals and

suppliers.

- Metallurgical coal, a brief history. - Market Update - The indices - Correlations - Changes to Paper Markets

500

510

520

530

540

550

560

570

580

70

80

90

100

110

120

130

140

150

02/01/2014 02/03/2014 02/05/2014 02/07/2014 02/09/2014

CFR China 62% Ore CFR China JM25 Coking Coal ASEAN HRC (RHS)

Good luck! All prices are dancing to the beat of separate drummers, highlighting the need for

independent paper contacts to deal with price risk in each commodity. Correlations are fleeting.

Spot the correlation U

S$/t

US$

/t

R2 correlations Daily Jan 14-Sep 14 Monthly Jan ‘13-Sep ‘14

Coking Coal - Ore 62.7% 84.1%

Iron Ore - ASEAN HRC 80.6% 59.9%

Source: TSI

SGX offers both FOB & CFR coking coal swaps and futures in 500 tonne lots, basis TSI.

CME offers futures in 1,000 ton lots, basis Platts.

Active contracts

105

115

125

135

145

155

165

175

TSI Platts

With active FOB contracts available on CME & SGX, it is appropriate to compare index

movements….

Active contract comparison (FOB)

Quick FOB Facts (Monthly)

TSI/Platts FOB Correlation (R2) 99.3%

Period 21 months

Frequency Monthly

US$

/t

Source: TSI/Platts

Quick FOB Facts (Daily)

TSI/Platts FOB Correlation (R2) 98.4%

Period 427 Days

Frequency Daily

100

110

120

130

140

150

160

170

180

TSI Platts

...Variation basis due to Platts FOB being a CFR netback and TSI FOB only accounting for

FOB sales. Daily freight rate movements do not affect the TSI index – only FOB sales.

US$

/t

Active contract comparison (FOB)

Source: TSI/Platts

Price History: CFR (monthly)

TSI’s CFR China index is constructed solely through metallurgical coal

trade conducted on a delivered-China basis. No strength, or weakness

from FOB sales, bids or offers are is netted forwards into this index.

115

125

135

145

155

165

175

185

195

US$

/t

Source: TSI

Price History: CFR (daily)

115

125

135

145

155

165

175

185

195

14

Jan

13

29

Jan

13

14

Feb

13

1 M

ar 1

3

18

Mar

13

3 A

pr

13

18

Ap

r 1

3

6 M

ay 1

3

21

May

13

6 J

un

13

21

Ju

n 1

3

8 J

ul 1

3

23

Ju

l 13

7 A

ug

13

26

Au

g 1

3

10

Sep

13

25

Sep

13

10

Oct

13

28

Oct

13

12

No

v 1

3

27

No

v 1

3

13

Dec

13

31

Dec

13

16

Jan

14

3 F

eb 1

4

18

Feb

14

5 M

ar 1

4

20

Mar

14

4 A

pr

14

22

Ap

r 1

4

8 M

ay 1

4

26

May

14

10

Ju

n 1

4

25

Ju

n 1

4

10

Ju

l 14

25

Ju

l 14

12

Au

g 1

4

27

Au

g 1

4

12

Sep

14

JM25 Premium, CFR China

US$

/t

Source: TSI

- Metallurgical coal, a brief history. - Market Update - The indices - Correlations - Relativities & Co-efficients

Co-efficient design

Metallurgical coal products have the widest number of interdependent variables – a

unique normalisation challenge in ferrous markets.

Ash.836

CSRVM

Fluidity.817

FSI.599

RV Max.765

FSI.536

Ash.586

RV Max.574

Vitrinite.534

Widely interdependent Variables

Sulphur

FSI.871

RV Max.673

Ash.611

Vitrinite.859

Vitrinite

VM.817

RV Max.564

T.Dil.487

Fluidity

Sulphur.859

FSI.862

Ash.692

Sulphur.871

Vitrinite.862

FSI

Ash

CSR.836

Vitrinite.692

RV Max.745

FSI.783

Sulphur.611

VM.586

RV Max

FSI.809

Fluidity.564

Vitrinite.520

Ash.783

VM.765

Sulphur.673

CSR.574

RV Max.809

Ash.745

CSR.599

VM.536

Most widely interdependent Variables

Stronger Correlate

-3

-2

-1

0

1

2

3

Vitrinite

CSR

Fluidity

Ash

Phosphurus

Volatile Matter

TSI Spec Coking Coal A Coking Coal B Coking Coal C Coking Coal D

Normalisation in practise

Each coal brand has different physical and chemical characteristics.

TSI’s specification is the base from which we judge all coking coals.

TSI Index Methodology

CSR Volatile Matter Vitrinite Fluidity Ash

TSI Spec 71 21 68 600 10

Coking Coal A 69 18 59 800 10

Coking Coal B 67 19 63 1100 10.5

Coking Coal C 72 24 72 510 11

CSR Volatile Matter Vitrinite Fluidity Ash

TSI Spec 71 21 68 600 10

Coking Coal A +2 +3 +9 -200 0

Coking Coal B +4 +2 +5 -500 -0.5

Coking Coal C -1 -3 -4 +90 -1

TSI logs the differential between each coking coal product and the TSI

specification…

Normalisation Coefficients

Premium Δ %

-0.955%

-0.775%

>23.5 -0.500%

<20 -1.185%

TM From Standard

Rvmax 0.500%

Fluidity 1.300%

FSI 0.600%

CSR 0.850%

Total Dilatation 0.010%

Vitrinite 0.080%

Ash

VM

Price Quality Adjustment

Base FOB price per 1 unit

change

-0.900%

-0.775%

>23.5 -0.500%

<20 -1.385%

From Standard

0.150%

Y-index 0.050%

CSR 0.500%

Price Quality Adjustment

Base CFR price per 1 unit

change Premium Δ %

Ash

TM

G-index

VM (20-23.5)

Quality adjustments are made with the following normalisation

coefficients to equalise products so that we can compare ‘like with like’.

FOB CFR

Different valuations due to different coals making up FOB/CFR inputs…

…As well as different normalisation values applied to each series.

Relativities: FOB

TSI uses a ‘mechanistic’ model for normalisation.

The below does not ‘value’ the coals, it delivers a mathematically

derived assumption for the value of each, based on index @ US$114.

Brand Normalisation Prediction Spread to Index

Peak Downs $115.1 101.0

Saraji $114.8 100.7

North Goonyella $114.2 100.2

TSI Index Premium FOB $114.0 100.0

German Creek $113.9 99.9

Wollombi $113.7 99.7

Illawara $113.7 99.7

Oaky North $113.6 99.6

Moranbah North $113.5 99.6

Goonyella $112.5 98.7

Oaky Creek $112.2 98.4

Hail Creek $112.1 98.3

Peak Downs North $108.9 95.5

%

Relativities: CFR

Brand Normalisation Prediction Spread to Index

Peak Downs $125.02 102.2

Saraji $124.32 101.7

Elkview $123.01 100.6

German Creek $122.87 100.5

Illawara $122.78 100.4

TSI Index Premium CFR $122.30 100.0

Hail Creek $121.44 99.3

wollombi $121.11 99.0

Riverside $121.00 98.9

Goonyella B $120.44 98.5

North Goonyella $120.14 98.2

Goonyella $119.95 98.1

Oaky $119.85 98.0

Standard $119.79 98.0

Premium $118.72 97.1

Peak Downs North $117.97 96.5

TSI uses a mechanistic model for normalisation.

The below does not ‘value’ the coals, it delivers a mathematically

derived assumption for the value of each, based on index @ US$122.

%

Steel: since 2006

Iron Ore: since 2008

Scrap: since 2010

Coking Coal: since 2012

Thank you for your attention!

mcoal@thesteelindex.com

Trading is voice brokered, with a number of brokerages now offering

services in metallurgical coal. The following contacts and brokerage

contacts are all based in Singapore:

Singapore Role

Tim Hard Index provider representative

www.thesteelindex.com

Adrian Lunt Exchange representative

www.sgx.com

Jarek Mlodziejewski Broker www.freightinvestorservices.com

Stephanie Idicula Broker www.ssyonline.com

Olivia Cailao Broker www.gfigroup.com

Kenny Mah Broker www.straitsfinancial.com

Tom Blackwell Broker www.icap.com

Alex Williams Broker www.marexspectron.com

Joelle Zhang Broker www.clarksons.com

Index/Exchange/Broker Contacts

TSI coking coal contacts

Contact our local staff for further information on TSI’s coking coal

indices, or data for back-testing correlations .

N. America

• Kurt Fowler: +1 412 431 0584 mcoal@thesteelindex.com

Europe

• Phil Whittaker +44 207 176 7667 mcoal@thesteelindex.com

Asia

• Tim Hard

• Serena Seng

• Jing Ng +65 6216 1057 mcoal@thesteelindex.com