Objective Capital's Industrial Metals, Minerals & Investment Summit 2010 London Chamber of Commerce and Industry 3 November 2010 Speaker: David Price

1. INDUSTRIAL METALS, MINERALS
AND MINEABLE ENERGY
INVESTMENT SUMMIT 2010
LONDON CHAMBER OF COMMERCE & INDUSTRY ● WEDNESDAY, 30 NOV 2010
www.ObjectiveCapitalConferences.com
1
International steam coal market outlook
David Price – Steam Coal Advisory Service

2. The international steam
coal market outlook
November 3, 2010 • London
CONFIDENTIAL
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Major Import Stories in 2010–15
Importer 2008 2009 2010 2011 2012 2013 2014 2015
Germany 31 28 29 30 32 32 32 32
United
Kingdom 37 31 19 25 24 23 22 21
Italy 19 16 17 18 18 18 19 20
Spain 17 14 8 7 7 7 7 7
Europe 191 175 164 176 175 174 177 178
USA 29 19 15 13 15 17 19 20
China 15 62 97 107 110 114 118 122
India 36 60 75 90 95 100 110 117
Total Asia 369 423 489 517 527 541 567 584
World 606 636 688 730 745 763 797 817
4
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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Short-term Atlantic Fundamentals:
The Market Wakes Up?
• Scandinavian hydro—still weak.
— A poor hydro year normally means a period of stronger coal demand
in Denmark and Finland
— Danish stocks ended summer very low
— Buyers should be in the market already
• UK stockdraw should end this winter.
— Falling utility stocks going into winter but…
— Late and short shoulder months this autumn and rising local
production
— Even so, 2011 should see imports back in growth
• Spain—mining support law may change things.
— Support for domestic mines offers support to power stations using
international coals as well
• United States—still caught up in the shale gale.
• But will the supply be there when things turn up?
5
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6
Norwegian Hydro Reserves—Weak
Going into Autumn
20
30
40
50
60
70
80
90
100
1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52
Percent
Weeks
2008
2009
2006
2007
2010
Source: Nordpool
Source: Nordpool. IHS_CERA_GSC_RT_London_101510

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7
Danish Power Station Coal Stocks
0
1,000
2,000
3,000
4,000
5,000
6,000
Thousand
Tons
Source: Danish Energy Agency
Source: Danish Energy Agency. IHS_CERA_GSC_RT_London_101510

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8
UK Electricity Supply Industry Coal-
burn
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Thousand
Tons
2005 2006 2008
2009 2007 2010
Source: DECC. IHS_CERA_GSC_RT_London_101510

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9
UK Utility Stocks
0
5
10
15
20
25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Million
Tons
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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10
United Kingdom’s Seaborne Import
Trends (End Year)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Thousand
Tons
2008 2009
2010 2009 Smoothed
2010 Smoothed
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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UK Mining Capacity Is Stabilizing
• UK coal investment program is complete.
— Daw Mill. Output of 3–3.5 million metric tons (mt) in 2011, against
2.9 mt in 2009 and a probable 2–2.5 mt in 2010
— Kellingley. Now working Beeston seam, boosting production to over
2mt per year, from 1.0 mt in 2009 and estimated 1.5–2.0 mt in 2010
— Thoresby. Now in the Deep Soft seam, raising output from second
quarter 2010 to 1.6–2.0 met per year. Output in 2009 was 0.8 mt and
2010 expected at 1.5 mt
• Other deep mines are steady.
— Hatfield on course for 0.5 mt per year
— Maltby at just over 1 mt per year, should aim for 1.5 mt per year
• Surface mining stable at c. 10 mt per year—could rise another
0.5 mt per year.
• Overall 2011 output to rise by 1 mt per year in 2011 and then
stabilize.
11
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12
Spanish Hydro Reserves—The Highest
since 2004
20
30
40
50
60
70
80
90
J F M A M J J A S O N D
Percent
2005 2006 2008
2009 2010 2007
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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Where Is There Growth in Europe?
• Germany—Local mine displacement to continue to 2018.
— New nuke provisions could squeeze coal-burn into 2020s
• Italy—Power station construction continuing.
• United Kingdom/Poland—Local mines have a better chance
but each closure offers room for imports.
• Turkey—Potentially massive power station construction on
the way.
• Morocco—Jorf 2 looks a strong possibility.
13
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The US Is a Demand Story Today
• Henry Hub prices remain low,
so gas-burn should stay high.
• Stockdraw needs to continue
into 2011.
• Buyers don’t need to buy.
14
0
2
4
6
8
10
12
14
16
Jan-05 Apr-07 Jul-09 Oct-11 Jan-14
The Henry Hub Outlook is Weak
(US dollars per MMBtu)
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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15
US Generator Stocks
40,000
50,000
60,000
70,000
80,000
90,000
100,000
110,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Thousand
Short Tons
2005 2008 2006
2009 2007 2010
Source: EIA. IHS_CERA_GSC_RT_London_101510

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But the United States Could Be a
Supply Story Soon
• Environmental regulation of mining will damage Appalachian
output—estimates vary from tens to hundreds of millions of
tons.
— Mine permits extremely difficult to win
— Limited effect so far but expected to hit hard soon
• MSHA is squeezing the deep mines.
— Protests and law suits but the wind is clearly blowing towards more
regulation and spot inspections
— Underground costs expected to rise
• MetCoal qualifications are widening.
— Pittsburg seam coals that were once too high in sulphur are being
gobbled up by Asian buyers
— US utilities being forced to buy elsewhere
• If the market picks up, where is the supply?
16
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17
Monthly US Production (All Coal)
Source: DoE.
80
85
90
95
100
105
110
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Million
ShortTons
2008 2009
2010 2009 Smoothed
2010 Smoothed
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China, India, and the Rest of Asia
Today
• Chinese import growth—40–45 mt banked by midyear, but
some of the gains lost second half—2011?
— New arrivals from Colombia and Venezuela complement huge
growth in arrivals from Indonesia, Russia and South Africa
— Massive production growth
• India—20 mt plus in 2009, same again this year?
— This is happening before ultra-mega power projects have any effect
• Malaysia—bad reaction to 2008 prices in 2009, back with a
bang this year (+3 mt)
• Korea—still powering on (another 4 mt growth).
• Taiwan—recessionary slump in 2009, recovery in 2010 (+4
mt).
• More to come from all in 2011.
18
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19
China’s Imports: Staying at 5–10 mt per
Month?
Thousand
Tons
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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20
Chinese Raw Coal Production
Million
Tons
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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China’s Massive Surge in Production
• Explanation 1—the amalgamation of mines.
— Low productive small mines have gone
— Amalgamations have provided a fleet of large and more efficient
mines
— Therefore production has boomed
• Explanation 2—the amalgamation of mines.
— In the past only 95 percent of output was counted because so much
illegal/unlicensed mining was going on
— Now 100 percent of mining is being counted, so a step-change is
going on
21
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22
The Main Chinese Coal Producing
Areas: The West Takes over?
dffdsdf
Thousand
Tons
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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China Is a Price Play—but a Permanent
Feature?
• China’s emergence was
clearly a response to price
and infrastructure.
• But quality is important as
well now.
• And are the prices
enmeshed?
23
Source: IHS CERA.
NB: Australian prices are for Newcastle quality material. All prices basis 5,500kc NAR.
0
2
4
6
8
10
12
0
50
100
150
200
250
Jan-08 Jan-09 Jan-10
Chinese Domestic versus
Australian Prices
Chinese Domestic Price
Australian Delivered Price
Imports
US Dollars
per Ton
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24
India’s Massive Import Acceleration
(million tons)
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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The Asian Import Stories
(mt)
Importer 2008 2009 2010 2011 2012 2013 2014 2015
China 15 62 97 107 110 114 118 122
India 36 60 75 90 95 100 110 117
Korea 77 83 87 87 87 88 93 94
Taiwan 60 49 53 55 56 56 58 59
Japan 124 108 111 109 107 107 107 107
SE Asia 52 55 59 62 65 69 72 78
Total
Asia
369 423 489 517 527 541 567 584
25
Source: IHS CERA. IHS_CERA_GSC_RT_London_101510

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Supply Issues for the Next Five Years
• Massive focus on the East—to continue
— Everybody investing in Indonesia, China, and Mongolia
— Indians investing in South Africa
— Indonesia and Australia should be the main trade beneficiaries.
• Falling freights
— Oversupply of ships to depress the market through the early 2010s
— Makes cross basin trades easier (good for the Colombians if they
can get the CIF differential down)
• Costs—going up
— Fuel costs and higher stripping ratios in Indonesia
— Labour and transport in South Africa
— Transport and taxes in Australia
• Bottlenecks to ease slowly in Queensland and South Africa
26
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IHS CERA in general, please contact
David Price
+1 44 (0) 203 159 3409
David.price@ihs.com
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Cambridge, Massachusetts 02142, USA
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