Metallurgical Coal Demand MetCoal Analysis & Forecast MinAxis Pty Ltd Metallurgical Coal Analysis & Forecast 4 th Quarter 2012
Metallurgical Coal Demand MetCoal Analysis & Forecast MinAxis Coal Analysis & Forecast (MAF) is an annual subscriber package which includes analyses and long-term forecasts of both metallurgical and thermal coal supply and demand. The annual MAF package includes the following two components: MinAxis Metallurgical Coal Analysis & Forecast (MetA) Updated tri-annually, MetA records, analyses and projects international metallurgical coal trade, as well as relevant steel industry sector activity. MetA Report issue frequency: As part of the MAF package, MetA Reports are issued during the months of February, June and October. MinAxis Thermal Coal Analysis & Forecast (ThermA) Issued in December of each year, ThermA records, analyses and projects internationally traded thermal coal (plus anthracite), as well as coal-fired power utility and energy sector activity. ThermA Report issue frequency: As part of the MAF package, one MinAxis ThermA Report is published in December of each year. MinAxis Coal Analysis & Forecast (MAF) annual subscription price MAF annual subscription price is A$3,600 (plus 10% GST for Australian based clients) for a package which includes three (3) MetA Reports and one ThermA Report. MAF subscribers are also entitled to MinAxis advisory and market support on a limited time-scale basis. MinAxis Coal Analysis & Forecast In preparing this publication, MinAxis Pty Ltd (MinAxis) has relied on not only its in-house expertise but also information derived from its data bases and a wide range of data sources including but not limited to both industry and public domain sources for which it is not responsible and cannot be held to be held responsible. Further, MinAxis has produced tables of historical and current data and estimated future price trends by collecting, interpreting and analysing production, economic, statistical and technical data from not only its data bases but also from third-party sources for which it is not responsible & cannot reasonably be held to be responsible. Coal industry data reported in the public domain and industry data sources may contain inconsistencies or otherwise be unreliable. Consequently, MinAxis makes no warranty regarding historical or forecast statistics published herein and as such they should not be relied on. Managing Editor: Graham Wailes +61 407 443 126 gwailes@minaxis.com Editor & Production Manager: Catherine Anderson +61 407 487 396 Registered Office: 1 Knowlman Avenue, Pymble, NSW 2073, Australia Copyright 2012 MinAxis Pty Ltd (MinAxis). This confers International Copyright under the Universal Copyright convention. All rights reserved. As a contractual condition, this Report is supplied on a confidential basis to the Licensee. Licensee warrants and undertakes to MinAxis that it will not reproduce or transmit materials contained in Metallurgical Coal Analysis and Forecast (Report) in any form, in whole or in part, without prior permission in writing from MinAxis.
TABLE OF CONTENTS Executive Summary 4 1) World Metallurgical Coal Market 12 Steel production demand driver for metallurgical coal 12 World steel market outlook 12 Blast furnace (pig) iron production forecast 15 World coking coal consumption and imports 18 International metallurgical coal trade 18 2) Internationally Traded Metallurgical Coal Demand 20 Metallurgical Coal Imports 20 Coking coal categories International supply-demand trend 23 Hard coking coal imports 24 Semi-Soft Coking Coal imports 26 PCI Coal Imports 27 Major Country Importers 29 Japan 29 China 31 India 39 South Korea 45 Brazil 47 Germany 52 Ukraine 53 3) Internationally Traded Metallurgical Supply 56 Metallurgical Coal 56 Hard Coking Coal Exports 57 Semi-Soft Coking Coal Exports 59 PCI Coal Exports 59 Major Country Exporters 60 Australia 60 USA 62 Canada 62 Russia 62 MinAxis Pty Ltd 1
Emerging Exporters 64 Mozambique 64 Mongolia 73 4) Metallurgical coal market activity & pricing 80 CY2011 80 H1-CY2012 82 H2-CY2012 83 Price outlook and forecast 86 Short term outlook 86 Long-term outlook 87 Benchmark price forecast 91 5) Internationally Traded Coal Supply-Demand Tables 93 Appendix 1 Metallurgical Coal Classification and Specification Definitions 108 Metallurgical coal types 108 Coking coal 108 Hard Coking Coal 108 Semi-Soft Coking Coal 108 PCI coal 108 Coal Coke 109 Metallurgical Coal Type Classification 109 Specification Definitions 109 Requisite properties for coking coals 110 TABLES Table 1: International Metallurgical Coal Trade Seaborne and Overland Delivery 7 Table 2: Australia-Japan Long-term Contract Benchmark Prices Japanese Fiscal Year 11 Table 3: Apparent Finished Steel Consumption 13 Table 4: Monthly Blast Furnace (Pig) Iron Production 16 Table 5: Blast Furnace Iron Production Forecast 17 Table 6: World coking coal consumption and imports 18 Table 7: Internationally Traded Metallurgical Coal Import Demand 20 Table 8: International Metallurgical Coal Trade Seaborne and Overland Delivery 21 Table 9: Major Country Drivers of Imported Metallurgical Coal Demand Growth 22 MinAxis Pty Ltd 2
Table 10: Major Country Drivers of Imported HCC Demand Growth 25 Table 11: Japan Integrated Steel Mill Financial Performance 29 Table 12: JSM Raw Material Costs US$ FOB 30 Table 13: Japan Metallurgical Coal Import Forecast 31 Table 14: China Metallurgical Coal Supply-Demand Balance 37 Table 15: China Metallurgical Coal Import Forecast 39 Table 16: India Metallurgical Coal Supply-Demand Balance 44 Table 17: India Metallurgical Coal Import Forecast 45 Table 18: South Korea Metallurgical Coal Imports 46 Table 19: Brazil Crude Steel Capacity, Production & Apparent Consumption 47 Table 20: Brazil Crude Steel and Blast Furnace Iron Production to 2020 49 Table 21: Brazil Metallurgical Coal Imports 50 Table 22: Brazil Crude Steel Production & Demand Forecast to 2020 51 Table 23: German Hard Coal Production, Consumption and Imports 52 Table 24: Ukraine Steel Production & Metallurgical Coal Imports 55 Table 25: Major Country Metallurgical Coal Exporters 56 Table 26: Major Country Hard Coking Coal Exporters 58 Table 27: Mozambique Metallurgical & Thermal Coal Production Forecast 70 Table 28: Mongolian Government Coal Production & Export Plan 79 Table 29: Mongolian Coal Export Forecast 79 Table 30: BHP Billiton Metallurgical Production 2007-2012 (100% managed basis) 81 Table 31: Australia-Japan Term Contract Quarterly Benchmark Prices 91 Table 32: Australia-Japan Long-term Contract Benchmark Prices Japanese Fiscal Year 92 Table 33: Internationally Traded Metallurgical Coal Imports 93 Table 34: Internationally Traded Metallurgical Coal Exports 94 Table 35: Hard Coking Coal Imports 95 Table 36: Hard Coking Coal Exports 96 Table 37: Semi-Soft Coking Coal Imports 97 Table 38: Semi-Soft Coking Coal Exports 98 Table 39: Coking Coal Imports 99 Table 40: Coking Coal Exports 100 Table 41: PCI Imports 101 Table 42: PCI Exports 101 Table 43: Low Volatile PCI Imports 102 MinAxis Pty Ltd 3
Table 44: Low Volatile PCI Exports 102 Table 45: Medium & High Volatile PCI Imports 103 Table 46: Medium & High Volatile PCI Exports 103 Table 47: Internationally Traded Thermal Coal Imports 104 Table 48: Internationally Traded Thermal Coal Exports 105 Table 49: Internationally Traded Coal Imports 106 Table 50: Internationally Traded Coal Exports 107 Table 51: Metallurgical Coal Type Classification 109 FIGURES Figure 1: Monthly Blast Furnace (Pig) Iron Production Trend 2007-2012 12 Figure 2: Hot Rolled Steel Prices 14 Figure 3: Major Metallurgical Coal Importing Countries CY2011 & 2025 19 Figure 4: Imported Coking coal Component Trends 1990-2012 23 Figure 5: Japanese steel industry coke making blend component trends 24 Figure 6: Major country importers of SSCC CY2011 & 2025 26 Figure 7: Imported PCI Demand 28 Figure 8: Apparent Finished Steel Consumption China 33 Figure 9: Monthly BFI Production 33 Figure 10: Steel Prices China 33 Figure 11: China Net Steel Exports 33 Figure 12: Apparent Finished Steel Consumption per Capita 34 Figure 13: China Blast Furnace Iron (BFI) and Coking Coal Production 35 Figure 14: China Metallurgical Coal Consumption 36 Figure 15: China Monthly Coking Coal Imports by Seaborne & Overland Delivery 38 Figure 16: India Crude steel and Blast Furnace Iron Production 43 Figure 17: Major Metallurgical Coal Exporting Countries 57 Figure 18: BHP Billiton Metallurgical Coal Quarterly Production (100% managed basis) 61 Figure 19: Premium Grade Hard Coking Coal Spot and Term Contract Prices 80 Figure 20: Hot Rolled Steel Prices 2010-2012 82 Figure 21: Quarterly Blast Furnace Iron Production by MetCoal Importers excluding China 84 MinAxis Pty Ltd 4
Executive Summary Record high term contract prices in first half of 2011, warmed by the promise of a long-term metallurgical coal trade El Dorado built on growth markets China, India, Brazil and others, accelerated the already huge volume of planned metallurgical coal production capacity expansions on corporate and government drawing boards. Back in the heady days of early 2011 (when the premium HCC benchmark price was at a peak of US$330/t FOB) we calculated an aggregated 84Mty of incremental metallurgical coal production capacity (greenfield and brownfield) committed or planned in Australia. By late 2011 (when prices were still very high), aggregated incremental metallurgical coal capacity plans had swollen to approximately 125Mt, of which ~90Mt was HCC or high grade SHCC, with the balance ~35Mt either SSCC or PCI. A significant proportion of the planned capacity additions were targeted for start up in 2014/2015. Elsewhere, we counted approximately 30Mtpy of planned metallurgical capacity additions in Canada, 38Mtpy each in Russia and emerging producer Mozambique, ~15Mtpy in Indonesia, and 105Mtpy in Mongolia. The bulk of these capacity expansion plans are now in hibernation or are delayed following the Q3-2012 market downturn and price free fall, which undoubtedly has raised many a boardroom and cabinet question as to what happened and why, what will be the severity and longevity of the current downturn, and where do we go from here. To answer the first question, from an international traded metallurgical coal demand perspective, one does not need to look much further than the fragility of the world economic and steel sector recoveries from the 2008/2009 global financial crisis (GFC), China s and the Japan s import performance in 2011, as well as that of Brazil this year. As China s GFC stimulatory package ran out and steel consumption and production growth slowed, the country s seaborne metallurgical coal imports dropped by 10Mt year-on-year in 2011 (to 28Mt), while this year s receipts (projected 32Mt) will recover less than half of last year s fall. Certainly Mongolian inroads into the Chinese market impacted on seaborne deliveries. However the major factor behind their demise has been the unheralded jump in Chinese domestic coking coal output. In 2011, while China s blast furnace iron (BFI) production increased by 6.7% year-onyear (from 590Mt to 630Mt), domestic coking coal output jumped by 11.6% (from 500Mt to 560Mt). This year, domestic coking coal production growth will be three times that of China s BFI output. Steel use by the rest of the world outside of China (ROW) has still not recovered to the pre-gfc level (780Mt). According to the World Steel Association (WSA), apparent finished steel consumption by the ROW will grow by a very low 1.7% this year to 770Mt, while the annual growth projected by the WSA for 2013 (3.4%) will be the lowest since the GFC. Metallurgical coal receipts by the world s largest importer Japan fell by 3Mt (6.4%) year-on-year in 2011, and in 2012 are on track to drop by more than 2Mt (4%) to 54.8Mt not far off the more than 30-year GFC related low of 51.7Mt in 2009. The vast bulk of Japanese metallurgical coal imports are attributed to the four Japanese integrated steelmakers (JSM) Nippon Steel & Sumitomo Metal, JFE Holdings, Kobe Steel and Nisshin Steel. And yet, the JSM, which drives the largest country market for traded metallurgical coal, has been barely profitable over the last four years, operating a loss during half of that period (JFY2009 and 2011). Currently, the JSM is headed for its second consecutive annual loss. MinAxis Pty Ltd 5