MARKET NEWS. Monday, Mar 19, Coal News

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1 Monday, Mar 19, 2018 MARKET NEWS Coal News The API2 Cal19 contract opened 15cents lower than Friday s close at $74.25/t in line with the stability shown in the German Power Cal19 market which opened flat at 34.40/MWh. The two markets soon came under pressure with the German Power Baseload Cal19 market closing 40cents lower on the day at 34.00/MWh. The Zhengzhou Commodity exchange May contract continued to come under pressure setting lows of Yn594.40/t during the afternoon session closing Yn5.00 lower on the day at Yn594.60/t as the market set fresh lows for this year. The Q218 API2 v NEWC spread closed 60cents lower at -$11.95 with the Cal19 API2 v NEWC spread closing 15cents lower at - $7.00 as the spread between the two markets continues to remain stable. The API2 Cal19 market fluctuated in a $1.40 range across the session closing $1.20 lower at $73.20/t after setting intraday lows at $72.85/t. Backwardation across the API2 curve found support today with the Q218 v Cal19 spread closing 30cents higher at $5.40 with the Cal19 v Cal20 spread tightening across the afternoon session closing 45cents lower at $3.00. Backwardation across the NEWC curve remained stable with the Q218 v Cal19 spread closing 15cents lower at $10.35 with the Apr-18 contract closing $1.95 lower at $92.20/t. Pg. 1

2 Iron Ore News Market Comment Chinese futures opened weaker this morning, the DCE dropping to a low before bouncing back to close at The swaps fell alongside, with Apr trading at the open but was down to at the lows, and trading last at Q2 traded between and Q3 between Spreads compressed aggressively in the front with Q2/Q3 closing at 1.40 value whilst in the backend cal19/20 spread was paid at 3.20 in smalls. Port Inventory According to Custeel's survey of 42 ports in China, the total port inventory stood at million tonnes on Friday, 16 Mar 2018, up 742,000 tonnes week-on-week, while daily cargoes evacuation decreased by 555,000 tonnes weekon-week to 2.05 million tonnes. Technical Report Commodity Currency Intraday Support and Resistance The daily technical on the AUDUSD is now testing the % retracement level. Below this support is at USD with resistance at and Pg. 2

3 Oil Market News Equities: The US stock market showed slight gains on Friday with the S&P 500 closing 0.17% higher and the Dow Jones up 0.29%. This came amid political disruptions at the White House at the end of the week as Trump decided to oust H.R. McMaster as his national security advisor. The White House has however denied that there are changes coming to the National Security Council. Lifting investor sentiment on the day was the Michigan consumer confidence index that rose to 102 in March, its highest level since 2004, and up from 99.7 achieved in Feb. Housing starts for February in the U.S. dropped to an annual rate of 1.24 million, weaker than economists' expectations and below January's upwardly revised 1.33 million. Despite Friday s gains, both indexes posted losses for the week, the Dow dropped 1.54% and the S&P 500 slipped 1.25%. European equities meanwhile finished in the green on Friday as investors tried to shake off concerns surrounding trade and political disruption in the US. Eurozone CPI results showed that the inflation rose less than expected in Feb by 1.1% y/y. Asian equities are trading mixed ahead of the EU open, with the Hang Seng trading 0.19% higher and the Nikkei down 0.71% at the time of writing. Bonds: UST yields ended the week all broadly higher but with a modest steepener bias as the likes of the 2v10 spread widened by 1bpt. The focal point remains at the front-end though as the LIBOR/OIS spread widening continuing to garner attention. So far it s still being excused away as being due to technicalities, but it does add to the defensive tone for markets at large. According to CFTC figures, short-covering was prominent through last week s mini-refunding with the total net short in bond futures diving by over 360k TY equivalents. Only the front-end saw increased net short positions for Eurodollars and 2yr Treasuries. The 2yr yield finished the week at new closing highs over 2.29%, while yields further out were actually lower. Gilts and EGBs in general seem to be getting a boost amid a softer data patch, while reinvestment flows and end-quarter positioning could also be at play here. The 10y Bund yield has closed at 0.57%, down 19bp from recent peaks. Comments overnight from ECB members that were hawkish could drive yields a little higher as a knee jerk into the new week. Currencies: Risk currencies continued leading the majors lower into the close of the week amid front-end US yields making new highs as market sizes up hawkish FOMC outcome. Added headwind for risk sentiment comes from constant trade war talk, especially for AUD given its liquid proxy status for anything China-related. On the week AUD was off 1.7% but CAD was the big under-performer with over 2% loss. CFTC data shows long contingent remained embedded early last week, explains squeeze pressures we have seen with BoC seen not being able to keep up with Fed hike intent. Key positional cross is still EUR-JPY though with over $30bn net spec long position embedded. We have seen outright JPY shorts getting whittled away lately, but position is still substantial and EUR s long actually grew. Market was most net short the USD since Oct, highlights broad squeeze risks going into the FOMC event risk. Sterling found itself on the defensive as the USD rebounded more broadly but there is still some optimism that the GBP will make back more lost ground as investors turn cautiously optimistic that the UK will be able to clinch a deal with EU authorities that will offer some clarity on what Brexit will look like. The degree of GBP optimism will likely depend on the degree of openness the EU offers Britain in the deal. Although it will not translate into an outright deal breaker, the nuance will likely be reflected in the GBP-USD performance. Credit markets: IG primary finished last week having priced just over $21bn in total. The story in the final days was of weakening credit conditions and new issues trading weaker in the secondary causing lower book coverage and wider new issue concessions. Mar volume is already over $78bn so the market also has some supply indigestion. BBG clocks the NIC as averaging 8bpts last week vs under 1bpt for Jan-Feb with book coverage of 2.16x vs 2.95x in Jan- Feb. Supply expectations are for another $20bn this week. IG USD pipeline: Tsinghua Tongfang, Qinghai Investment (3yr), Shandong Iron, Assurant (5,10,30yr), Shinhan Bank, ADCB (5yr), Korea Water, Lenovo (5yr), Welltower, AfDB Pg. 3

4 (3yr), KCA Deutag (5yr; 0.4bn), MHP, Seplat Petroleum (0.5bn), Qingdao China, Thai Oil, IL&FS Transport (5yr), ChemChina (3,5,7,10yr), Al Ahli Bank, SEK (5yr; 1.25bn), Unigel, GTT Communications, Thomson Reuters (5.5bn), United Overseas Bank, Bahrain, Angola (2bn), Oman, EnfraGen (7yr), Burford Capital (7.5yr), United Insurance Holdings (10yr), Buckeye Partners (0.4bn; 60yr). Energy: Both Brent and WTI had a strong finish into the close of last week with the front month European Brent contract closing at $66.21/bbl whilst the corresponding US Benchmark namely WTI finished the session at $62.34/bbl. The spike higher occurred late morning in the US session and held into the close with many scratching their heads as to the reason for the sudden move to north. Granted, the move was a big one when viewed within the recent range trade but pulling back the lens oil prices remained well within their respective tops and bottoms. Taking a look at the options market the 2nd Month Put skew subsided strongly late last week which many well have emboldened the bulls into the close. One point worth mentioning is a note from BAML analysts which were quoted as saying the following, With spec shorts already at a 15-year low, the positioning risk to the oil market is that some of the bears wake up from winter hibernation,. The news into the weekend from Baker Hughes has been that US drilling rigs have continued to rise, now marking 7 rises out of the last 8 weeks. The market continues to play to the theme of surprisingly resilient OPEC output cuts, which have helped to shore up prices even while US drilling activity is rising. That Russia is promising that the output curbs could remain in place until 2019 is one of the factors likely to dissuade too much shorting interest for now. Oil prices were up at close of Asian trading Monday, pushed higher as thousands of civilians fled besieged enclaves on opposite ends of Syria over the weekend as two major battles in a multi-sided war entered decisive phases. The two offensives, one backed by Russia and the other led by Turkey, have shown how Syrian factions and their foreign allies are aggressively reshaping the map of control after the defeat of Islamic State's self-proclaimed caliphate last year. The government launched its offensive on eastern Ghouta a month ago, and Turkey began its cross-border assault in Afrin in January. At the same time, capping gains, U.S. drillers added four oil rigs this week, bringing the total count to 800, according to General Electric Co's Baker Hughes energy services firm. It was the seventh U.S. rig count rise in eight weeks. May ICE Brent futures was $1.14 higher at $65.83/bbl, while the rest of the 43-month forward contracts traded between $0.04 and $1.14. Front month April WTI futures was up $1.10 at $61.99/bbl, with the other 44-month forward contracts trading between -$0.08 and $1.12. The May Dubai EFS gained $0.09 at $3.27/bbl, while the June Dubai EFS increased $0.17 at $3.49/bbl. The Cal '18 Brent/Dubai rose $0.96 at $2.91/bbl as the Cal '19 contract posted gains of $0.52 at $3.87/bbl. Benchmark 180-cst FO was $3.00 higher for March contracts at $368.25/mt; Cal '18 gained $3.43 to $363.53/mt while the Cal '19 traded $6.19 higher at $327.19/mt. March 180-Dubai cracks were down $0.39 at -$4.28/bbl, the Cal '18 contract dipped $0.34 at -$4.30/bbl while the Cal '19 strengthened $0.44 at -$5.85/bbl. The 3.5% Rotterdam Barges March crack weakened $0.57 at -$11.03/bbl; the Cal '18 contract lost $0.35 at -$10.62/bbl and the Cal '19 was up $0.31 at -$14.77/bbl. Pg. 4

5 The front month April ICE LGO futures contract posted gains of $6.00 at $580.00/mt, while the Cal '18 traded $6.22 higher at $578.19/mt and the Cal '19 contract increased $4.29 at $568/mt. The April GO EFS (10ppm) differential narrowed $0.85 at -$0.54/mt while the May contract was down $0.12 at -$3.63/mt. The March Singapore GO 10ppm contract increased $1.04 at $78.08/bbl and the Cal '18 contract increased $0.86 at $77.04/bbl; Cal '19 advanced $0.68 at $75.08/bbl. The March CFR-naphtha contracts rose $7.00 at $572.00/mt; Cal '18 was up $6.40 at $557.65/mt and the Cal '19 contract increased $7.71 at $524.65/mt. March CFR naphtha-brent cracks were $0.33 lower at -$1.52/bbl; Cal '18 dipped $0.21 at -$1.80/bbl while the Cal '19 advanced $0.36 at -$2.29/bbl. Pg. 5