Coal supply to Asian markets 5th November, 2014

Mitsubishi Corporation RtM International Pte. Ltd Vice President, Coal Division Yoshihiro Sumida

Contents 

RtM Introduction - Thermal coal trading at Mitsubishi



Import / export analysis - Supply & demand one year trend Major countries’ Monthly imports/exports (Aug 2013 - Aug 2014)

-

Record analysis Major countries’ import & export (Jan - Aug 2013 vs. Jan - Aug 2014)



Future trend -

Supply & demand projection

November 2014

(2013 onwards )

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Thermal coal trading at Mitsubishi Mitsubishi Corporation established a subsidiary “Mitsubishi Corporation RtM International” headquartered in Singapore and “Mitsubishi Corporation RtM Japan Ltd.” in Tokyo and transferred its entire mineral resources trading business (including thermal coal) into these RtM entities. Now all the mineral resources trading business of Mitsubishi Corporation is operated under Mitsubishi Corporation RtM and expanding its global footprint in resource trading industry.

Russia

Europe

USA

Korea

China

•

RtM International (Singapore) is our hub for global thermal coal trading and RtM Japan (Tokyo) is our regional headquarter for Japanese market and No.1 thermal coal importer among trading houses in Japan.

•

Our global offices closely work together with headquarters on dayto-day trading activities and contribute to this extensive global network, particularly in Asia, which we leverage to maintain/create new business.

•

We trade thermal coal mainly to Asia such as Japan, Korea, Taiwan, China, Malaysia, Philippines, India etc from various origins such as Indonesia, Australia, US, Canada, South Africa etc.

•

We offer a variety of solutions that satisfy customers’ requirement with trading, hedging, marketing agency, logistics, vessel chartering, credit risk management, mine financing and in-house market analysis etc.

Japan

Hong Kong

India Vietnam Malaysia

Taiwan Philippines Indonesia

Australia South Africa

Singapore

Our global thermal coal trading operates from offices in Singapore, Tokyo, Beijing, New York, London, Jakarta, Johannesburg, New Delhi, Hong Kong, Vancouver, Moscow and other regional offices (Trading Headquarter) November 2014

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Import / export record analysis

November 2014

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Supply and demand one year trend Major Countries' Monthly Imports (Aug 2013 - Aug2014)

Major Countries' Monthly Exports (Aug 2013 - Aug 2014)

(Mt)

(Mt)

(Mt)

25

40 38

25 20

36

20

34 15

32

15

30 10

28

10 26 5

5

24 22

0

0 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

JAPAN

CHINA

INDIA

TAIWAN

UK

TURKEY

Source: Mitsubishi Corporation RtM International

November 2014

20 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug

S.KOREA

AUSTRALIA

US

COLOMBIA

RUSSIA

S AFRICA

INDONESIA

* Indonesia figure is on right axis. The rest is on left axis “Resource to Market”

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Record analysis of major exporting countries (Jan – Aug 2014) < Considerations for the future > Indonesia

Export growth 2014 (8M) vs 2013 (8M)

(Mt)

  

+16.5

15

Indonesian export expansion to slow down Domestic demand to increase (how much?) Renegotiation with Mining contractor, barge company, etc to further reduce costs

Australia

10

 

+8.8 +7.8

Colombia   

5

0 Australia

Colombia

S. Africa

One of the cheapest (production cost) suppliers. Any chance to come back to Asia? Any labor dispute/strike affect export growth?

S.Africa

+0.2

Indonesia

Indian demand to absorb Australian export? Weak A$ to continue and support export competitiveness?

US



Russia*

 

Logistics constraint (Transnet missed their coal railing target for April-Sep) continue to be a bottleneck? Indian demand to support SA’s future supply? Any labor dispute/strike affect export growth?

  

Tough competition (mainly with Indonesia in Asia Pacific) Consistent coal quality Large ports accommodating capesize vessels

▲0.7

-5

US -10

▲9.2

* 7M2014 vs 7M2013 Source: Custom Statistics, Mitsubishi Corporation RtM International

November 2014

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Situation in Australia and Indonesia 120

HBA & ICI5000 & ICI4200

gC NEWC in USD vs AUD 110

110

HBA ICI4200 Kcal ICI5000 Kcal

90

100 90

70

80 70

50

gC NEWC Weekly Index gc NEWC in AUD

60 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14

30

Jan-12

Jun-12

Nov-12

Apr-13

Sep-13

Feb-14

Jul-14

Source: globalCOAL, Bloomberg

 Weak AUD is supporting Australian suppliers despite declining gC NEWC prices

 Continued decline of Indonesian prices seen for all coal grades.

 Cost reduction generally successful so far.

 Cost reduction options almost exhausted?  Further supply discipline needed

November 2014

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Record analysis of major importing countries (Jan – Aug 2014) < Considerations for the future >

Import growth 2014(8M) vs 2013(8M)

(Mt)

China 

15

 

10

For the remainder of the year 2014 (Sep to Dec), a decrease in import is expected mainly due to slowdown of economy growth and import discouragement guidance (to support China’s domestic coal industry). Effects of China’s import discouragement policies? Import demand continue to decrease?

India  

5

Logistics constraints (*) hinder import growth? (*) Domestic inland transportation/increase in ship congestion, etc Situation of struggling domestic production continue?

Korea 0 China

India

Japan

Korea

Taiwan

-5

  

Flexible use of coal with various quality. Supported by over-supply. Limited impact of Import tax introduced in July

Japan 

-10 Source: Custom Statistics, Mitsubishi Corporation RtM International

November 2014

 

Short term

: High CV sources (Aus & Russia) increasing : Low CV sources (Indo) struggling Medium term : Limited growth until 2018 Rising import tax making high CV more competitive

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Situation in China (RMB/MT)

BSPI vs gC NEWC

700

100 BSPI gC NEWC Weekly Index

650

YoY Comparison (2013 8M / 2014 8M)

(USD/MT)

600

(Unit: mil t) 6

95 90

4

85

2

80

0

+5.1 +3.0 +1.9

Australia

550

75

Indonesia

Russia

Others

▲0.2

-2

70

500

South Africa US/Canada

▲2.9

-4

65 450 Aug-12

60 Jan-13

Jun-13

Nov-13

Apr-14

Sep-14

-6 -8

▲5.5 Source: Custom Statistics

Source: globalCOAL, BSPI

 China’s import behavior has changed due to the guidance from NDRC on coal import cut; International price no longer follows China’s domestic price November 2014

 Large increases for Australian & Russian coal while there is a sharp fall in Indonesian and S.African coal  high CV coal is gaining its competitiveness relative to other low CV coal

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Situation in Korea and Taiwan Korea : YoY Comparison (2013 9M / 2014 9M)

(Unit: mil t)

(Unit: mil t) 1.5

Taiwan : YoY Comparison (2013 8M / 2014 8M) 2.0

+1.3

+1.8

1.5

1.0

+0.8 1.0

0.5

+0.2

+0.8

0.5 +0.2

0.0 Australia

Indonesia

Russia

South Africa US/Canada

Others

0.0 Australia

▲0.2 -0.5

+0.1

Indonesia

Russia

South Africa US/Canada

Others

-0.5 ▲0.5

-1.0

-1.0

▲1.1 -1.5

Source: Custom Statistics

▲1.0

▲1.2

-1.5

Source: Custom Statistics

 Relative advantage and competitiveness of high CV materials (Australia and Russia) is also seen in Korea and Taiwan

November 2014

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Situation in Japan YoY Comparison (2013 9M / 2014 9M) +1.9

+1.9

2.0

Current Situation in Japan  Due to high demand, some regular maintenances are being postponed.

1.5

 Mechanical troubles at some power plants, partly due to high operation rate.

1.0 0.5 0.0 Australia

-0.5 -1.0

Indonesia

Russia

South Africa

▲0.3

▲0.1

US/Canada

▲0.5

Others

▲0.1

 Kyushu’s Sendai #1, 2 may be the first nuclear power plant to restart in CY15 but it remains to be seen.

(Unit: mil t) Source: Custom Statistics / RtM Japan

JPU operation suspension EPC

P/S

Unit

MW

Tohoku

Noshiro

#2

600

Isogo

#1

600

Tachibana- #1 1050 J-Power wan #2 1050

Incident

Duration of Stop

Corrosion of plumbing Meltdown of electrical motor

Extended maintenance (30/Mar - 21/Jul ⇒ 30/Mar - 30 Jul)

 Timing of (1) restart of nuclear power generation and (2) start-up of new coal-fired power generation is one of the key factors

Stop operation from 29/Jun to 9 Jul

 Total demand is expected to be stable for several years

Steam Leak

Extended maintenance (20/Mar 24/Jul ⇒ 20/Mar - 4/Jul) Stop operation from 9/Jul to 2/Aug

Steam Leak

Stop operation from 6/Aug to 16/Aug

No press release

Damaged lowStop operation from 28/Mar to 5/Aug Matsuura #2 1000 pressure turbine (40% load operation from 6/Aug) rotor Kyushu

Reihoku

#1

700

Steam Leak

Stop operation from 18/Jun to 7/Jul

#2

700

Steam Leak

Stop operation from 26/Jun to 13/Jul

November 2014

Future Dynamics in Japan

 “Petroleum and Coal Tax” (Import tax) which is increasing in stages is expected to be a certain burden on Sub-bituminous coal for price competitiveness. (Petroleum and Coal Tax : import tax) Initial Rate 700

“Resource to Market”

2012/10/1920 (+220)

2014/01/01 1140 (+220)

Unit: yen 2016/04/01 1370 (+220)

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Supply & demand projection Certain growth from Asia Europe

Russia

73

97

Canada 3

China

Japan

Turkey

Korea

212

21

127

92 18 Thailand

India

USA

USA

44

6 Mexico 6

Taiwan 2

Colombia

67

Vietnam

24 Demand

74 13

136

Philippines

Malaysia

1. Capacity expansion of existing power producers

Indonesia

2. New power plants in countries with existing coal imports for power (regulations)

(2013)

South Africa

Supply

73

402

(2013)

Large Demand Rise in Asia

Australia

188 Source: Mitsubishi Corporation RtM International

3. New power plants in countries with no current coal import for power (developing regulations)

Asia set to be, by far, the largest contributor to global growth Bearish market continues in the short term Timing of Asian demand increase is the key November 2014

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Reliable & Sustainable Solutions For Your Coal Needs

Thank you If you have any questions, comments or business opportunities with us, please email our group address or myself at anytime. RtMI Coal Division Yoshihiro (Jack) Sumida

: [email protected] : [email protected]

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Mitsubishi Corporation RtM International Pte Ltd has based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Mitsubishi Corporation RtM International Pte Ltd makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Mitsubishi Corporation RtM International Pte Ltd only and are subject to change without notice. Mitsubishi Corporation RtM International Pte Ltd assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit which you may incur as a result of the use and existence of the information provided within this Report. The content of this Report is the property of Mitsubishi Corporation RtM International Pte Ltd and is protected by copyright and other intellectual property laws. You agree not to reproduce, re-transmit or distribute the content of this Report to anyone without the prior written consent of Mitsubishi Corporation RtM International Pte Ltd.

November 2014

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