Global and SA Coal Markets Overview, trends: Domestic and Export Markets

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Global and SA Coal Markets Overview, trends: Domestic and Export Markets

• Global Overview

• Financing Coal Mines

• South Africa’s Markets • Exports

• Local Industry

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The Coal Markets beyond 2015

Over the coming decade, coal demand will, we expect, continue to rise. The International Energy Agency’s (IEA) World Energy Outlook 2014 suggests that while coal will undergo a relative decline in the energy mix, global coal demand by 2040 will rise 15%. However, coal consumption will vary dramatically from region to region. In coming decades, coal demand will originate from non-OECD states, primarily Southeast Asia, the Middle East, India, Africa and Brazil.

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The Coal Markets

In Europe’s declining economy, the access to cheap gas and renewable policy incentives have promoted the weakening of coal. Nevertheless, scope does exist for growth, in countries like France where nuclear power will be phased out – WCA.

In the coming decades, coal production, demand and pricing trends will be led by Asia. By 2040, China, India, Indonesia and Australia will be responsible for 70% of global production.

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The Coal Markets

In China, regardless of recent trends, demand for coal will increase. Gas, renewables and nuclear energy will grow over the coming decades, however, the coal use for electricity generation is fundamental. A further likely scenario for reductions in coal demand will come from industrial shifts from coal to gas and structural changes to the Chinese economy. India’s economic development, as China’s before, is founded in coal. As the world’s third largest producer, coal accounts for 68% of electricity generation. India’s Planning Commission projects that 2 billion tons of coal will be required by 2031-2032 to meet their energy demands.

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Oil and Coal Indicate the Global Economy is in a Free Fall

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Global Coal Latest News 21-24 July 2015

• The revolution in India’s energy industry, triggered by the Prime Minister government, may appear good for state market, but coal export plans will suffer from the initiative big time.

A new report from DB, India is very serious about shifting towards renewable energy. • Bankruptcies Starting To Pile Up In the US Coal Industry. The coal industry is in trouble. After

decades of strong financial results and dominance of the power sector, producers are starting to fall apart faster than anyone could have anticipated.

• The world saw a new No.1 supplier rise in the commodity market this week. And the identity is a shock. The commodity is coal. Specifically, high-grade anthracite — used both in steelmaking and power generation. The nation is North Korea.

• Seaborne coal trade is currently projected to drop 1% in 2015, first annual decline in almost three decades. The force behind the slump is a collapse in Chinese seaborne coal imports, which fell 40% in the first five months of the year.

• Global mining firm Glencore said it is planning to close some of its South African coal mines and laying off workers due to falling prices.

• The new Nacala coal terminal, in Mozambique’s has received 50 tons of coal, this is the first time coal will be exported from this port.

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Is Coal as Easily Replaceable as You Think?

July 17, 2015

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Stringent regulatory measures to control emissions are having an adverse impact on the unrestricted use of thermal coal for power generation. Despite this fact, coal still holds an advantageous position due to its wide availability and lower cost compared to other fossil fuels and renewable sources of energy. A report from World Coal Association says, we currently have 861 billion tons of proven coal reserves worldwide. This means that there is enough coal to last nearly 112 years at current rates of production. In comparison to this, proven oil and gas reserves are equivalent to around 46 and 54 years, respectively, at current production levels.

The Chinese Syndrome

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The decline of coal imports into China, has been a shock, and a huge impact. Low coal prices initiated China’s imports of coal. China became the largest importer of coal globally, and steam and coking coal imports reached 260Mt in 2013. In 2014, China’s monthly imports had attained 30Mt, supplying 10% of its coal needs. Then signs appeared, as China focused on air pollution in their cities. Soon, they started to change their link with coal. Import taxes and quality limits were publicised, and power plants had to reduce dependence on imported coal. For the first time, China’s coal imports fell by 10% in 2014.

Australia’s Blues

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It is a bad time for coal miners with prices for thermal and metallurgical coal at their lowest in years. The promised reduction of major miners have not managed to cap oversupply. The outlook for coal prices is likely to remain weak in the foreseeable future. Thermal coal prices have decreased more than 20% in the past year, creating painful hammerings for producers. With boldness and careful cost regulation, now is the right time for juniors to do coal projects before of the next prices increase, if there is one. Despite of renewables, coal is not disappearing soon. The world needs coal’s cheap, reliable energy. BP’s annual review says that coal’s share of energy demand is the highest since 1970, making it the world’s fastest growing fuel.

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Indonesia’s Conundrum

Indonesia's coal production weakened 3.4% last year below total output from the previous year.

Exports slid 5% in 2014, down from 2013.

The decline in coal production, the first in 30 years for Indonesia, is the result of low global prices, which have led some producers to cut output and also of Indonesia's new export rules. A coal producer said it is more difficult to sell low rank coal in the global market. Now, he is aiming for the inland market where he is fetching better prices. “He says; “I’m hopeful for our mines. We are hardly covering costs.”

Indonesia will revise its expected coal production for 2015 to around 460Mt.

Indonesia is the world's top producer of thermal coal and the biggest exporter to China and India, both now cutting

imports.

Asia’s Analysis

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Demand will continue to rise. As with thermal coal, India is likely to overtake China as the biggest importer of metallurgical and thermal coal. India potential increase of coal imports, will probably be sourced from Australia. There are still difficult times ahead, mainly for thermal prices at their current levels. As with so many investments, the best is to invest on the down cycle. For those prepared to work cleverly on small budgets, the rewards will come.

Markets – What Happened Since Last Year?

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Developing Countries

Yvo de Boer of the WCA says that coal is a vital part of the energy mix for years to come. The WCA has long been supporting the important role of coal in bringing people out of poverty. China is an example. On the past three decades China has connected 99% of its people to the grid, increasing steel production by 18%, and cement production by 14% and developing their economy rapidly. de Boer, said “you have to be able to offer these countries a viable alternative, before you begin to reject coal.”

Markets – What Happened Since Last Year?

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Coal Mining Finances

Financiers are not happy about funding coal because of environmental issues. This decision is praised by environmental groups who want banks to halt loans to coal miners. It has already been announced that lending to coal companies is reduced, because of the risk that future regulation and competition from natural gas pose on the coal industry. In South Africa, for almost three years, has become almost impossible to find funds to develop new coal projects.

SA Exports 2014 by Region

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Region Mass (Mt) %

Far East 40.5 54.39

Europe 18.1 24.38

Middle East 9.4 12.64

Africa 5.0 6.68

Americas 1.4 3.38

SA Exports 2014 by Country

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Country 2014 Country 2014

Argentina 367 499 Malaysia 1 606 446

Bangladesh 79 034 Mauritius 590 753

Benin 69 737 Morocco 1 338 387

Brazil 133 644 Mozambique 844 265

Canada 182 650 Netherlands 9 690 484

China 3 175 604 Nigeria 134 741

Croatia 135 000 Pakistan 3 366 568

Denmark 685 605 Portugal 155 000

Djibouti 319 317 Romania 43 460

Egypt 157 000 Senegal 552 462

Ethiopia 48 537 Spain 2 937 183

France 835 979 Switzerland 64 300

Germany 304 300 Taiwan 1 344 000

Ghana 40 000 Tanzania 46 000

Guyana 75 000 Togo 94 404

India 30 454 391 Tunisia 65 000

Irish Republic 126 821 Turkey 3 580 693

Israel 2 503 247 UAE 2 284 810

Italy 1 515 990 Uganda 10 000

Japan 145 000 UK 1 128 218

Kenya 445 567 Ukraine 520 875

Republic of Korea 305 300 Uruguay 33 000

Kuwait 336 446 USA 574 345

Madagascar 531 806 Yemen 382 626

SA Exports 2015 by Region

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Region Mass (Mt) %

Far East 17.3 55.5

Middle East 4.7 15.3

Africa 4.5 14.4

Europe 4.1 13.2

Americas 0.4 1.4

RBCT Coal Index 2004 – 2015

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0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

May-0

4

Sep-0

4

Jan-0

5

May-0

5

Sep-0

5

Jan-0

6

May-0

6

Sep-0

6

Jan-0

7

May-0

7

Sep-0

7

Jan-0

8

May-0

8

Sep-0

8

Jan-0

9

May-0

9

Sep-0

9

Jan-1

0

May-1

0

Sep-1

0

Jan-1

1

May-1

1

Sep-1

1

Jan-1

2

May-1

2

Sep-1

2

Jan-1

3

May-1

3

Sep-1

3

Jan-1

4

May-1

4

Sep-1

4

Jan-1

5

US$/ton

US$

globalCoal Indices:12 Months

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globalCOAL Weekly Indices: Last 12 Months

NEWC DES ARA RB

SA’s Inland Coal Market Tonnages and Prices

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User Mass (Mt) Price (R/t)

ELECTRICITY 117 .3 258

SYNFUELS 39 .6 297

MERCHANTS AND DOMESTIC 10 .1 381

INDUSTRIES 5 .2 502

STEEL 3 .2 588

CHEMICAL 2 .2 237

METALLURGICAL 1 .7 969

CEMENT 1 .0 456

BRICK AND TILE 0.2 143

AGRICULTURE 0.02 734

TRANSPORT 0.01 777

MINES 0.01 742

Total 180 .8 294

Markets – What Happened Since Last Year?

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SACRM – Electricity Future Needs

Markets – What Happened Since Last Year?

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SACRM – Electricity Future Coal Prices

Markets – What Happened Since Last Year?

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SACRM – Electricity Future Coal Demand

303.6 Mt Discards 51.8 Mt

Electricity 120.8 Mt

Exports 64.0 Mt

SA Coal Industry – Future Trends

• Despite a rapid but small increase in renewable energy sources to 1.6% of the total, fossil fuels still provide the major share of power generation with coal accounting for 85.6% of South Africa’s electricity, a situation that will not change in the near term.

• As a result of the current lack of incentives and capital to implement new projects, coal production has remained static for some years. Because some of the old big mines reserves are almost exhausted, production will soon will drop drastically.

• Inland prices have increased continuously and some better grades fetch now higher prices that similar grades in the seaborne market.

• Exports are constrained by lack of demand and extremely low prices.

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Year Mass (Mt)

2002 220.2

2003 239.3

2004 242.8

2005 245.0

2006 244.7

2007 247.7

2008 252.7

2009 250.6

2010 254.7

2011 257.7

2012 258.4

2013 256.0

2014 260.5

YEARLY PRODUCTION

303.6 Mt Discards 51.8 Mt

Electricity 120.8 Mt

Exports 64.0 Mt

Conclusions

• Coal production has stagnated since 2002. If new mines of sizable production (able to replace the 6 mega-mines closing down around 2020) are not implemented soon, production will sharply decrease.

• Exports are not high revenue makers anymore. Some export quality coal is sold to inland buyers at higher than FOB RBCT prices.

• Eskom future plans depend entirely on increased production, which cannot be attained without investments on new projects.

• Coal needs to be used in South Africa, if total economic collapse is

to be avoided.

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SA Coal Markets Overview, trends: - Domestic and Export Markets

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