COKE MARKET REPORT Analysis of the Global Metallurgical Coke & Coal Markets

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Also Including: Pig Iron Output Data Trade Data on Coke & Metallurgical Coal

Issue 01/13 January 21, 2013 The Coke Market in January 2013 The economic mood has turned more positive at the start of the year, this being reflected in higher asset prices including commodities. The oil and the steam coal markets have been higher in January. Spot coking coal has edged upwards, and this may push up coke prices too in the next few weeks. Following the first-quarter settlement for hard coking coal at $165/tonne fob, spot prices have risen from $158-162/tonne fob in December to $160-165/tonne fob this month, the highest level since August. Upside potential looks to be limited, however. Indian import prices for blast furnace coke are unchanged from last month at $290-300/tonne cfr with offers coming mainly from Ukraine. Coke from China is being offered at $320-340/tonne cfr, too high for the current market. The Indian prices declined more or less continuously last year, even though demand for imports appeared to pick up in the second half. Last year’s imports of coke by India are likely to be about 5% down on the 2011 volume of 2.1m tonnes. China’s total coke exports have been confirmed as 1.02m tonnes in 2012, less than one-third of the previous year’s volume. The removal of the 40% export tax at uthe start of this year has meant that prices for blast furnace coke have declined from $450-460/tonne fob in December to $300-310/tonne fob. However, this price remains too high to make transactions workable currently. Likewise, nut coke is offered at $270-275/tonne fob, about $80/tonne lower than last month but still too high for the international market. With no export tax, foundry coke is likely to be about $360-370/tonne fob, a rate that should be interesting for customers in Europe and elsewhere. Currently, however, there appears to be little interest in exporting Chinese coke of any grade. The Chinese domestic coke market is tight, and prices have risen by around $60/tonne since the September low-point. Blast furnace coke prices average the equivalent of almost $280/tonne this month, not significantly different to price indications in Europe or India. The European blast furnace coke market looks unchanged at $260-280/tonne cfr. Foundry coke prices appear to be €5-10/tonne down this quarter at €380-410/tonne delivered ($500-539/tonne).

Export indications from China fall dramatically… but still there is lack of immediate interest.

Coking coal keeps rising, coke largely unchanged as yet.

COKE MARKET REPORT

— January 2013 —

0.80

0.85

0.90

0.95

1.00

1.05

Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13

Coke Price Indexed Against Other Markets

Coke Thermal Coal OilSteel Coking Coal

World blast furnace iron production has been declining almost continuously since April 2012. In November the adjusted total was 1.06bn tonnes on an annualized basis, 1% down on the previous month. There is unlikely to have been any upturn in December, though this quarter may see some turnaround. Europe In 2012, NWR produced 680,000 tonnes of coke at its Ostrava plant in the Czech Republic, but sales were only 555,000 tonnes. Most of its production is for the foundry market. Despite the poor market situation, NWR expects coke production to be 800,000 tonnes in 2013, up on last year. Asia Chinese coke production last year totaled 443.2m tonnes, according to the coke association, 4% up on 2011. The rate of increase slowed in 2012; in the ten-year period 2003-12 the average annual increase was 9% per year. Chinese coke capacity is said to be more than 600m tpy, so there is considerable over-supply potentially. According to our current estimate, China accounted for 67-68% of world coke production last year. Coke production in Taiwan was 4.82m tonnes in 2012, 1% down on the previous year. Of this quantity, China Steel accounted for 3.86m tonnes and Dragon Steel 0.96m tonnes; the latter operation (affiliated to China Steel) only starting to produce in 2010. Dragon Steel’s coke production was 13% lower than in 2011. Total coke capacity in Taiwan is 6.8m tpy indicating considerable over-capacity. However, Dragon Steel plans to start a second blast furnace in March, which will require more coke. Hoa Phat Energy of Vietnam produced 300,000 tonnes of coke in 2012, slightly down on the quantity of the previous year. It exported around 100,000 tonnes, three times the quantity in 2011. Existing capacity of 0.35m tpy was doubled in 2011, but this second stage has yet to be activated. Hoa Phat began producing in 2009, primarily taking advantage of the high tax on Chinese coke exports at the time.

Iron production declining for past nine months.

Slower growth in Chinese coke production in 2012, considerable over-capacity.

111.6105.3 107.3

115.5108.1

112.8

0.6

0.3 0.2

0.3

0.30.2

0.62

0.64

0.66

0.68

0.70

0.72

0.74

0.76

80859095

100105110115120

Ratio

Mill

ion

tonn

es

Chinese Coke Apparent Demand & Exports

ExportsDemand (= Output - Exports)Ratio: Coke Demand / Iron Output

COKE MARKET REPORT

— January 2013 —

Asia (cont’d) At the end of last year, the board of Pakistan Steel Mills ordered a technical evaluation of the feasibility on keeping one of its two batteries on hot idle indefinitely. Since being rebuilt and heated up at the end of 2010 by Ukrainian contractor Concord Industrial Project, battery #1 has not produced coke due to coal shortages and low demand. With battery #2 – rebuilt and restarted in 2008 – there is a total potential capacity of around 1.0m tpy of coke at Pakistan Steel, but actual production has only been 0.2-0.3m tpy in the past three years. To achieve profitability long term, steelmaking will need to reach 80% of capacity, requiring both batteries to produce; yet until this is achieved, battery #1 needs to be kept on hot idle using contractors at a cost of $100,000 per month. North America SunCoke Energy reported preliminary production for last year at its five US plants of 4.34m tons (3.95m tonnes), 15% up on 2011. Full-year production of its newest facility at Middletown, Ohio was responsible for the increase. Its US capacity totals 4.0m tpy so production effectively ran at maximum. Bankrupt RG Steel has asked a US court to liquidate its joint-venture agreement with Severstal to manage the coke plant, Mountain State Carbon in West Virginia. RG Steel claims that it has been blocked from participating in the plant’s management since it went bankrupt in June 2012. It has asked the court to order a sale of the West Virginia coke plant so that it can maximize recovery for its creditors. Three of the four batteries were put on hot idle in June 2012, cutting operational capacity to 0.7m tpy. Two of its major long-term customers – the steel plants at Sparrows Point and Steubenville – ceased operating last year. Canadian coke production was 2.90m tonnes in 2012, slightly down on the previous year. Assuming the four steel plants in Canada remain in operation, coke production is likely to continue at this level for the next few years. Other markets Coke production at South Africa’s three plants – all ArcelorMittal – totaled 2.23m tonnes in 2012, 8% down on the previous year. Of this quantity, 0.44m tonnes went to the local merchant market (mainly for ferrochrome production), 32% down on 2011. Mechant coke was produced at the Pretoria and Newcastle plants, none at Vanderbijlpark as in previous years. The quantity produced for steelmaking (1.79m tonnes) was similar to that in the previous year. Steelmaker Siderar in Argentina produced 1.01m tonnes of coke last year, 9% down on 2011. In Chile, Cia Siderurgica Huachipato produced 0.47m tonnes, just 1% lower than in 2011. Both steelmakers also imported coke in 2012 to meet 5-10% of their demand, Colombia being the main supplier. Coke imports by Brazil totaled 1.59m tonnes in 2012, 27% down on the previous year. Colombia (0.49m tonnes) overtook China (0.39m tonnes) to become the leading source to the Brazilian market; there was also supply from India, Poland and Ukraine.

Keeping one of two batteries on hot idle has cost and technical drawbacks for Pakistan Steel.

US coke plant has uncertain future.

METALLURGICAL COKE & COAL MARKET PRICES

— January 2013 —

Blast Furnace Coke Prices

$0

$100

$200

$300

$400

$500

$600

Feb-09

May-09

Aug-09

Nov-09Fe

b-10

May-10

Aug-10

Nov-10Feb

-11

May-11

Aug-11

Nov-11Feb

-12

May-12

Aug-12

Nov-12

Cok

e Pr

ice,

$/to

nne

China Export, 12.5% Ash China Dom, 12.5% AshIndia, 11.5/12.5% Ash N Europe, 10.5/11.5% Ash

Coking Coal Prices

$0

$50

$100

$150

$200

$250

$300

$350

Feb-09

May-09

Aug-09

Nov-09

Feb-10

May-10

Aug-10

Nov-10

Feb-11

May-11

Aug-11

Nov-11

Feb-12

May-12

Aug-12

Nov-12

Coa

l Pri

ce, $

/tonn

e fo

b

Hard Coking - Contract Hard Coking - SpotWeak Coking

World Coke & Coking Coal Prices Nov 2012 Dec 2012 Jan 2013 US$/tonne fob China: Blast Furnace Coke, 30/90mm, 12.5% Ash $390-410 $450-460 $300-310 Nut Coke, 10/25mm, 13/14% Ash $340-360 $340-360 $270-275 Foundry Coke, 80/220mm, 12% Ash $500-520 $500-520 $360-370 Chinese coke prices include 40% export tax applied since August 2008. US$/tonne cfr northern Europe: Blast Furnace Coke, 30/90mm, 10.5/11.5% Ash $260-280 $260-280 $260-280 Nut Coke, 10/25mm, 12/13% Ash $250-260 $270-290 $270-290 Coke Breeze, 0/10mm, 12/14% Ash $140-160 $140-160 $140-160 Foundry Coke, 90/250mm, 8/10.5% Ash (Delivered) €390-420 €390-420 €380-410 ($500-539) ($511-550) ($500-539) US$/tonne cfr India: Blast Furnace Coke, 30/90mm, 11.5/12.5% Ash $305-315 $290-300 $290-300 US$/tonne fob Australia (Premium Grades): Hard Coking Coal – Quarterly Contract $170 $170 $165 Hard Coking Coal – Spot $150-160 $158-162 $160-165 Weak Coking Coal – Spot $95-100 $110-115 $115-120 US$/tonne cfr China: Hard Coking Coal $170-175 $170-175 $175-180 Prices are obtained via informal discussions with industry participants. Detailed specifications used as reference for above prices are on www.resource-net.com/prices.htm.

PIG IRON OUTPUT DATA

Pig iron data are from the World Steel Association. Output data have been de-seasonalized, i.e. adjusted for established seasonal (monthly) variations, and annualized. Monthly rates of change have been measured over periods of six months and one year.

SEASONALLY ADJUSTED & ANNUALIZED DATA MILLION TONNES % Monthly Change

Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 6 Months 1 Year

Europe 94.69 95.26 97.39 95.57 95.77 92.80 90.64 87.02 89.48 -1.8% -0.2% Austria 6.16 6.08 5.70 5.72 5.59 5.68 5.39 5.50 5.80 -0.1% 0.3% Belgium 4.17 3.88 4.32 3.82 4.20 4.45 3.71 3.57 4.39 0.2% 0.1% France 10.06 9.63 10.11 9.09 9.74 10.22 9.04 8.91 9.43 -0.6% -0.4% Germany 27.23 26.98 28.11 27.89 27.22 26.55 26.68 27.09 26.66 -0.7% 0.5% Italy 9.97 9.87 9.98 9.50 9.55 9.64 9.59 8.95 8.78 -1.7% -1.3% Netherlands 5.99 5.90 5.43 5.95 6.28 5.89 5.75 5.78 5.98 -0.7% -0.3% United Kingdom 4.95 5.81 8.57 8.78 8.24 7.74 8.01 8.04 8.01 -1.5% 4.2% Other Europe 26.16 27.11 25.17 24.80 24.96 22.63 22.48 19.18 20.43 -5.0% -2.0% Americas 81.01 80.94 75.84 70.83 73.01 74.40 70.44 70.57 69.85 -0.6% -1.6% Canada 7.69 7.66 7.84 6.79 7.85 7.22 7.44 7.58 7.89 1.9% -0.9% United States 34.97 35.05 33.63 31.02 30.72 34.02 29.26 26.82 28.00 -3.0% -2.0% Brazil 29.12 28.97 26.17 26.31 26.74 25.28 25.99 28.50 26.19 0.6% -1.1% Other Latin America 9.23 9.26 8.19 6.72 7.70 7.88 7.75 7.68 7.75 1.9% -2.1% Asia 849.12 863.17 844.02 833.42 851.22 817.36 818.56 813.93 798.10 -1.0% -0.1% China 673.69 680.28 665.09 651.35 669.69 634.19 640.84 640.60 625.89 -0.9% -0.2% India 36.84 45.64 44.79 45.18 43.96 44.49 43.71 41.29 41.32 -1.9% 0.8% Japan 83.99 82.83 80.46 82.69 82.90 83.99 81.49 78.89 79.41 -1.1% 0.2% South Korea 42.70 42.85 41.88 41.16 42.26 42.40 41.53 41.70 39.96 -0.6% -0.2% Taiwan 11.90 11.56 11.80 13.04 12.40 12.28 10.99 11.46 11.51 -2.8% 0.0% Middle East 11.45 9.77 10.10 9.26 10.34 10.81 10.68 11.46 11.69 4.1% -0.1% Africa 5.30 5.29 5.41 5.24 5.30 5.19 5.15 5.15 5.19 -0.4% -0.2% Australasia 4.02 4.57 4.43 4.58 4.44 4.37 4.40 4.34 4.00 -2.1% -0.7% CIS Republics 81.49 81.57 81.46 80.92 78.08 79.41 82.63 83.48 84.04 1.2% -0.1%

TOTAL 1,127.08 1,140.57 1,118.65 1,099.82 1,118.16 1,084.34 1,082.51 1,075.94 1,062.35 -0.8% -0.2%

Annualized Global Pig Iron Output Data

975

1000

1025

1050

1075

1100

1125

1150

1175

Dec

-11

Jan-

12

Feb-

12

Mar

-12

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Mill

ion

tpy

ActualSeasonally AdjustedOne-Year Trend = -0.2% /Month

Progression of Historical Rates of Increase of De-seasonalized

Global Pig Iron Output

-2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Dec

-10

Jan-

11Fe

b-11

Mar

-11

Apr

-11

May

-11

Jun-

11Ju

l-11

Aug

-11

Sep-

11O

ct-1

1N

ov-1

1D

ec-1

1Ja

n-12

Feb-

12M

ar-1

2A

pr-1

2M

ay-1

2Ju

n-12

Jul-1

2A

ug-1

2Se

p-12

Oct

-12

Nov

-12

% C

hang

e Pe

r M

onth

Six-Month Period One-Year Period

COKE TRADE DATA

Data from national customs authorities, extracted using code CN 2704 0019 (“Other Coke & Semi-Coke of Coal”).

000 TONNES 2011

2012

Qtr

2 1

2

Qtr

3 1

2

Qtr

4 1

2

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

% C

h Yo

Y

Coke Exports China 3,299 1,016 335 277 155 110 54 113 46 49 60 -69% Czech Republic 508 117 100 32 37 31 35 -26% Japan 659 367 361 129 141 91 145 77 87% Poland 5,854 1,377 1,413 529 411 473 -15% Ukraine 1,985 655 634 236 225 172 255 15%

Coke Imports Europe Austria 1,320 371 284 102 96 86 -11% Czech Republic 528 155 136 47 39 50 14 -16% France 868 165 116 53 31 32 43 -24% Germany 4,101 837 725 254 233 238 247 -35% Sweden 82 14 14 4 8 2 9 -43% United Kingdom 113 18 16 7 1 7 4 -41%

Asia Japan 726 249 189 95 26 67 76 67 7% South Korea 395 362 88 80 82 21 18 41 25 35 23 -9% Taiwan 136 202 64 51 59 20 19 12 14 27 17 49%

North America Canada 403 96 71 12 10 49 68 83 -21% United States 1,268 349 132 45 25 62 29 51 -11%

Other Brazil 2,164 1,591 449 183 429 87 64 32 136 82 211 -27% South Africa 390 67 53 18 24 11 34 27 -6%

Polish Coke Exports

300

400

500

600

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

000

tonn

es

2010-11 2011-12

World Coke Trade

0

1

2

3

4

5

6

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Q3

12

Mill

ion

Ton

nes

$100

$200

$300

$400

$500

$600

$/tonne cfr

Trade Volume Price

METALLURGICAL COAL TRADE DATA

Data from national customs authorities. Prices indicated are deduced from customs statistics and therefore include all coking coal grades.

US Metallurgical Coal Exports

0

5

10

15

20

Q1

10Q

2 10

Q3

10Q

4 10

Q1

11Q

2 11

Q3

11Q

4 11

Q1

12Q

2 12

Q3

12Q

4 12

Mill

ion

Ton

nes

$50

$100

$150

$200

$250

US$/tonne fob

Exports Price

Australian Metallurgical Coal Exports

20

25

30

35

40

45

Q4

09Q

1 10

Q2

10Q

3 10

Q4

10Q

1 11

Q2

11Q

3 11

Q4

11Q

1 12

Q2

12Q

3 12

Mill

ion

Ton

nes

$50

$100

$150

$200

$250

$300

US$/tonne fob

Exports Price

000 TONNES 2011

2012

Qtr

2 1

2

Qtr

3 1

2

Qtr

4 1

2

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

%Ch

YoY

AustraliaAll Met Coal Exports 133,590 35,668 34,473 10,898 11,052 12,522 11,262 17%Export Price:A$/tonne fob $235 $181 $171 $170 $172 $170 $144US$/tonne fob $242 $183 $178 $175 $181 $178 $148

Hard Coking:Exports 87,500 21,724 21,342 6,137 7,108 8,097 7,172 10%Export Price:A$/tonne fob $256 $198 $191 $193 $190 $189 $153US$/tonne fob $264 $200 $198 $199 $199 $197 $157

Semi-Soft Coking, PCI:Exports 46,090 13,944 13,131 4,762 3,944 4,425 4,090 30%Export Price:A$/tonne fob $194 $155 $139 $140 $141 $136 $128US$/tonne fob $200 $157 $145 $145 $148 $142 $131

CanadaMet Coal Exports 27,630 8,627 7,384 3,001 1,780 2,604 2,448 10%Export Price:C$/tonne fob $266 $207 $189 $189 $193 $185 $156US$/tonne fob $269 $206 $190 $186 $194 $189 $158

ChinaCoking Coal Imports 44,518 53,479 15,363 8,841 17,050 3,852 2,569 2,420 3,605 5,864 7,581 20%Sea-borne 24,468 34,420 10,058 5,361 10,760 2,192 1,746 1,423 2,317 3,144 5,299 41%From Mongolia 20,050 19,059 5,305 3,480 6,290 1,660 823 997 1,288 2,720 2,282 -5%

United S tatesMet Coal Exports 63,078 18,295 15,406 5,741 5,239 4,426 4,240 4,283 2%Export Price:US$/tonne fob $205 $173 $163 $168 $159 $162 $149 $146