Global Coal: A review of 2014 and outlook for 2015 presented to Coal Association of Canada members Joe Aldina Senior Analyst 24 February 2015 Trusted commercial intelligence www.woodmac.com
2014 was a challenging year for thermal coal markets We estimate seaborne thermal imports did not achieve any demand growth in 2014 Import demand change – 2014 vs. 2013 (Mt) Export supply change – 2014 vs. 2013 (Mt) 20 20 20 17 10 10 1 1 0 0 Mt Mt 0 0 (1) (5) -10 -10 (16) (17.5) -20 -20 2014 China India JKT RoW 2014 Indonesia Australia US RoW demand supply change change NOTE: 1. JKT means Japan, South Korea and Taiwan 2. RoW means rest of the world. 3. Data on these charts Source: Wood Mackenzie refer to Jan-Oct 2014 actual figures 2 Trusted commercial intelligence www.woodmac.com
Market has been jolted in 2014 by China’s retreat from the trade Seaborne metallurgical imports fell in 2014 for the first time since the GFC Import demand change – 2014 vs 2013 Supply change from key exporters* – 2014 vs 2013 10 15 14 6 Australia has taken market 5 10 share from nearly all its 2 competitors this year 2 0.4 0 5 2 (5) 0 (1) (2) (8) (3) (4) -5 (10) (5) *Note: Global supply and (6) demand not balanced in this chart. Final annual -10 (15) exports from smaller exporters will likely see further falls (17) -15 (20) 2014 Australia US Canada Indo. Mozam. Russia RoW 2014 China JKT India Germany RoW Supply Demand Source: Wood Mackenzie Coal Markets Service Note: Demand and supply not balanced. 3 Trusted commercial intelligence www.woodmac.com
Chinese steel demand to remain subdued, limiting seaborne coking coal demand Weak property sector weighing on demand Property sector expected to remain weak 4,500 4,500 Series9 Series9 4,000 4,000 Series8 Series8 3,500 3,500 Series7 Series7 (Y): Axis Title 3,000 3,000 (Y): Axis Title Series6 Series6 2,500 2,500 Series5 Series5 2,000 2,000 Series4 Series4 1,500 1,500 1,000 1,000 Series3 Series3 500 500 Series2 Series2 0 0 Series1 Series1 aaa ccc aaa ccc (X): Axis Title (X): Axis Title 4 Trusted commercial intelligence www.woodmac.com
Canada was not spared from the pain felt around the world 2014 seaborne thermal coal operating margins (US$/t) 2014 seaborne metallurgical coal operating margins (US$/t) 80 60 60 40 40 20 20 0 0 ROW -20 ROW -20 CANADA CANADA -40 -40 -60 -60 -80 -100 -80 0 49 99 148 197 247 296 0 99 197 296 394 493 592 690 789 Million tonnes Million tonnes Source: Wood Mackenzie 5 Trusted commercial intelligence www.woodmac.com
A look at the factors affecting global coal market oversupply Seaborne FX demand Scale Costs Cash Contracts flow 6 Trusted commercial intelligence www.woodmac.com
Even as mining costs stabilise, seaborne met coal cash costs fall across most regions on diesel and FX… Seaborne metallurgical coal cash costs (US$/t) 2015 Cost Change (%) $160 2012 US App 3% 2013 $140 2014E Indonesia (0%) Cash cost (US$/tonne) 2015E $120 Canada (3%) $100 Australia (6%) $80 Mozambique (10%) $60 Russia (30%) $40 -30% -20% -10% 0% 10% Mozambique US App Canada Australia Indonesia Russia Source: Wood Mackenzie 7 Trusted commercial intelligence www.woodmac.com
…seaborne thermal coal cash costs continue to fall across most regions as well Seaborne thermal coal cash costs (adjusted to 6,322 kcal/kg (gar)) (US$/t) 2015E Cost Change (%) $90 2012 South Africa 4% 2013 2014E $80 United States 3% 2015E Cash cost (US$/tonne) $70 Colombia 3% Australia (4%) $60 (5%) Indonesia $50 (28%) Russia $40 United States Australia South Africa Colombia Indonesia Russia -30% -20% -10% 0% 10% Source: Wood Mackenzie 8 Trusted commercial intelligence www.woodmac.com
Impact of diesel price slide has varying effects depending on operating regime Mine site costs sensitivity by region 12% 10% Indonesia Percentage change 8% Venezuela Chile Colombia Mozambique 6% US (PRB) Canada China South Africa 4% Australia Russia US (ILB) 2% US (APP) Botswana 0% 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 US$ per tonne change *Bubble size represents total marketable production, 2014 Source: Wood Mackenzie 9 Trusted commercial intelligence www.woodmac.com
Margins remain thin, while currency moves provide some support 2015 Negative Margin (Mt) Seaborne metallurgical coal cash margins (US$/tonne) 2012 $80 2013 $60 2014E Margin (US$/tonne) 2015E $40 24 22 $20 $0 -$20 Russia Canada Australia Indonesia Mozambique US App US App Australia Mozambique Canada Indonesia Russia Source: Wood Mackenzie 10 Trusted commercial intelligence www.woodmac.com
Margins remain thin, while currency moves provide some support 2015 Negative Margin (Mt) Seaborne thermal coal cash margins (US$/tonne) 1 0 0 $40 2012 2013 4 $30 6 2014E Margin (US$/tonne) 2015E 14 $20 $10 22 85 $0 -$10 -$20 Russia Colombia South Africa Australia Indonesia US ILB US APP US PRB US WB Canada Indonesia Australia US PRB South Africa US APP US WB Canada Colombia Russia US ILB Source: Wood Mackenzie 11 Trusted commercial intelligence www.woodmac.com
Cost evolution: FX having significant impact, providing margin relief, especially in Russia Operating margins – Operating margins – Russian export metallurgical coal (US$/t) Russian export thermal coal (US$/t) Source: Wood Mackenzie Coal Supply Service 12 Trusted commercial intelligence www.woodmac.com
A spike in rumoured deals in Q4 2014 points to a rebound in M&A An estimated US$9 billion was added to our Coal Deal Pipeline in Q4 2014 Net additions / reductions in pipeline value (US$Bn) Number of identified assets in pipeline by type $20 80 $15 60 $10 40 US$Bn $5 20 $0 - Thermal HCC SCC PCI -$5 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Reductions Europe NE Asia Southern Africa Australasia North America SE Asia Latin America SE Asia Latin America Southern Africa NE Asia North America Australasia Europe Cumulative net change Source: Wood Mackenzie 13 Trusted commercial intelligence www.woodmac.com
Summary Costs remain very near the bottom even with diesel price declines… …but FX movements are improving margins in places such as Australia and Russia US miners are staggering; some may not be able to “go the distance” Metallurgical coal prices are bottoming (even in US$ terms) – still some time before we see a material rebound in met or thermal markets Canada to benefit from weaker C$, weakness of US miners
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Questions? Wood Mackenzie coal contacts Joe Aldina Conor Bint Senior Analyst, Coal Research VP, Business Development T +1 212 915 2321 T +1 587 390 4303 E joe.aldina@woodmac.com E conor.bint@woodmac.com 18 Trusted commercial intelligence www.woodmac.com
Disclaimer Strictly Private & Confidential This report has been prepared for presentation to the Coal Association of Canada on 24 February 2015 by Wood Mackenzie Limited. The report is intended solely for the benefit of the Coal Association of Canada and its members and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission. The information upon which this report comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them. 19 Trusted commercial intelligence www.woodmac.com
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