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Colombia: Atlantic basin pacesetter Argus Webinar 31 July 2013 Ross Allen Molly Christian
Agenda for today Argus in market data services Global market intelligence provider Market trends & fundamentals Colombian production and exports Quality Competing coals: Russia, South Africa, USA Methodological discussion Indexation in Colombia 2013 and beyond What s coming up
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Colombian coal markets & fundamentals
Colombian steam coal exports rise in 2007-2012 Competitive costs and more favorable weather aiding volumes but sour labor relations have dented tonnage in 2012 and 2013 9 8 7 6 5 mn mt/month Thermal exports last year were down by 5pc from 2011 because of strikes but 9.5pc above the five-year average 4 3 2 1 0 2007 2008 2009 2010 2011 2012 2013 Source: SIMCO
Major producers planning expansions Cerrejon (BHP Billiton, Xstrata, Anglo American) planning to raise output to 40mn mt/yr from 34.6mn mt in 2012 Glencore s Prodeco unit targeting 20mn mt in 2014 from 14.7mn mt last year Inaugurated Puerto Nuevo terminal in May (initial loading capacity of 21mn mt/yr) Drummond had been targeting more than 30mn mt this year compared with 26mn mt in 2012 ahead of strike, port setbacks Colombian steam output to reach 108mn mt in 2018, up 27pc from last year, mines and energy minister Federico Renjifo says
Labor strife, lower prices cloud near-term outlook Colombian thermal exports in January-May down 47pc from same period last year (Deep Blue shipping agency) Cerrejon, Colombian Natural Resources and Drummond have all encountered strike or port disruptions this year Lower seaborne prices reflect softer demand: FOB Bolivar prompt 90-day prices off by 20pc from the start of 2013 8 6 4 2 0 mn mt/month Jan Mar May Jul Sep Nov Jan Mar May Source: Deep Blue
Thermal coal reserves in Cesar, Guajira, Cordoba 86pc of Colombia s exports from largest miners o Cerrejon (2010: 43pc) o Drummond (30pc) o Prodeco (13pc) Reflects significant project capital needs o Mines o Railroads o Terminals
Reserves have decent heat but levels vary Producer: Typical NCV: (kcal/kg) Sulphur: Terminal: Cerrejon 5,906-5,933* < 1pc Puerto Bolivar Drummond 6,017-6,350 < 1pc Puerto Drummond Glencore 5,933-6,350 < 1pc Puerto Nuevo Colombia Natural Resources 5,294-5,739 < 1pc Rio Cordoba Pacific Coal 6,239-6,739 < 1pc Carbosan *Range of 5,628-6,000 kcal/kg Source: Producers, US EIA
Colombian cost advantage
Colombian steam exports by destination in 2012, mn mt Venezuela Belgium Taiwan India Dominican Republic Cayman Islands Japan Slovenia Germany Croatia Guatemala Argentina France Canada Italy Ireland Brazil Denmark South Korea Portugal China Chile Israel Spain US Other Turkey Netherlands 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.5 0.5 0.6 0.6 1.0 1.1 1.6 1.7 1.8 1.8 1.9 3.3 3.5 4.8 4.9 5.0 6.9 7.9 8.2 0 3 6 9 12 15 18 15.3 Source: SIMCO
European delivered prices hit three-year lows Europe s economic headwinds and high US, Colombian exports are pressuring prices 140 130 120 110 $/mt Markets expected to stay under pressure in the near term despite favorable economics of burning coal versus natural gas 100 90 80 70 60 2010 2010 2011 2012 2013
Arbitrage window shut for most US coals US east coast<1pc sulphur fob port 80.00 Capesize 11.00 Delivered 91.00 CIF ARA @ $76/mt FOB US Gulf <1pc sulphur fob port 81.00 Capesize 17.00 Delivered 97.00 FOB US Gulf 3pc typical fob port 58.85 Capesize 17.00 Delivered 75.85 Prices are in $/mt for prompt 90 days, 6,000kcal
Russian coal also above index on delivered basis CIF ARA @ $76/mt Russia fob Baltic port 80.00 Panamax 8.85 Delivered 88.85 Prices are in $/mt for prompt 90 days, 6,000kcal
Delivered South African coal closer to ARA levels CIF ARA @ $76/mt Prices are in $/mt for prompt 90 days, 6,000kcal Richards Bay, South Africa fob port 72.51 Capesize 8.20 Delivered 80.71
Colombia can comfortably price into Europe US east coast fob port 80.00 Capesize 11.00 Delivered 91.00 CIF ARA @ $76/mt Russia fob Baltic port 80.00 Panamax 8.85 Delivered 88.85 Puerto Bolivar fob port 66.15 Capesize 10.60 Delivered 76.75 Prices are in $/mt for prompt 90 days, 6,000kcal Richards Bay, South Africa fob port 72.51 Capesize 8.20 Delivered 80.71
Asia-Pacific is a tougher target (cfr south China $85/mt) Pitt Seam 13,000 Btu, 3.5lb SO2 Port delivered 94.96 Cape, Panamax 31, 39* Delivered 126-134 Puerto Bolivar (6,000kcal) fob port 66.15 Capesize 26* Delivered 92.15 Prices are in $/mt for prompt 90-day period, except Pitt Seam. *estimated seaborne rate Newcastle (6,000kcal) fob port 77.02 Capesize 150k 9.20 Delivered 86.22
Colombia price assessment methodology
Argus/IHS McCloskey Coal Price Indexes Argus/IHS McCloskey provides coal prices and historical trend data for the API indexes, which are the key price benchmarks used in the international coal industry. Exchanges using the API indexes include CME and ICE. The Argus/IHS McCloskey coal indexes are used as the settlement prices in 90% of the world's coal derivative contracts. Spot and historical data can be accessed in numerous ways, including online and via FTP. More information at: ArgusMcCloskeyCoal.com
Argus/IHS McCloskey Coal Price Indexes - Thermal API 2 - the standard reference price benchmark for coal imported into northwest Europe. It is an average of the Argus cif ARA assessment and the IHS McCloskey NW Europe Steam Coal marker. API 4 - the benchmark price for coal exported out of South Africa's Richards Bay. The API 4 index is an average of the Argus fob Richards Bay assessment and the IHS McCloskey Richards Bay FOB marker. API 5 - an average of the Argus fob Newcastle 5500 assessment and the IHS McCloskey Australian 5,500 kcal NAR FOB marker. API 6 - an average of the Argus fob Newcastle assessment and the IHS McCloskey Newcastle FOB marker. API 8 - an average of the Argus cfr south China assessment and the IHS McCloskey/Xinhua Infolink South China CFR (5,500 kcal NAR) marker. API 10 - an average of the Argus fob Puerto Bolivar assessment and the IHS McCloskey Colombia FOB marker. More information at: ArgusMcCloskeyCoal.com
Argus/IHS McCloskey Coal Price Indexes API 10 API 10 averages the Argus fob Puerto Bolivar assessment and the IHS McCloskey Colombia FOB marker. Argus FOB Puerto Bolivar Typical Reject Heat: 6000 kcal/kg 5750 kcal/kg Sulphur: <1pc 1pc Lot size: 50,000 kt N/A Delivery point: Puerto Bolivar N/A More information at: ArgusMcCloskeyCoal.com and ArgusMedia.com
Argus coal methodology is transaction based Argus has a two-stage price identification process: Volume weighted average Market survey fob Colombia $101x10 fob $104x10 fob Colombia $100x10 30 deals of equal volume at yields $101.67/mt VWA maintains firm foundation in reported deals Survey process keeps check on leverage and validates the VWA transactions Full list methodology always at Argusmedia.com
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