Coal Trends and Market Insights - REAMP Discussion Summary
Explore global, national, and Illinois Basin coal trends discussed by Tom Sanzillo in 2014. Analyze global coal production, largest producers and consumers, and imports/exports data. Understand major drivers of coal demand curve in China and the United States market outlook. Witness the evolution of coal's share in U.S. electricity generation vis-a-vis natural gas.
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Presentation Transcript
Global, National and Illinois Basin Coal Trends REAMP Discussion September 25, 2014 Tom Sanzillo Director of Finance
Global Coal Production 2008-2013 Coal Production (billion tons) 9 8.5 8 7.5 7 6.5 2008 2009 2010 2011 2012 2013 Coal Production
Worlds Largest Producers 2013 Production 4000 3500 3000 2500 2000 1500 1000 500 0 China United States India Indonesia Russia Australia Germany Poland 2013 Production
Worlds Largest Consumers 2012 Consumption 4500 4000 3500 3000 2500 2000 1500 1000 500 0 2012 Consumption
Global Imports/Exports: Global Trade 2012 1.4 billion 2013 Importers (million tons) 2012 Exports (million tons) 350 450 400 300 350 250 300 200 250 150 200 100 150 100 50 50 0 0 2013 Imports 2012 Exports
9000 8000 Million tonnes of coal equivalent (Mtce) 7000 6000 5000 4000 3000 New Policies Current policies 2000 450 1000 ETA/IEEFA 0 2000 2005 2010 2015 2020 2025 2030 2035
Major Drivers of Demand Curve China: Thermal coal demand peaks early in the 2015-2020 period and declines to below 2010 levels by 2035. China becomes an opportunistic exporter on any thermal coal price strength. This equates to rates of decline up to -0.9% CAGR in 2020-2035. This reflects: Continued energy efficiency gains reducing the ratio of electricity to GDP growth; Slower GDP growth and a transition towards less energy intensive sectors; Increased thermal power plant efficiency; Technology gains, particularly battery storage, solar, on and offshore wind; Continued electricity supply diversification i.e. more gas, nuclear, wind, solar and hydro; and Beyond 2020 offshore wind will then step up as another area of diversification. India, Japan, U.S., Korea and Taiwan
Coals Share of U.S. Electricity LT Decline Coal vs. Natural Gas Percentage of All U.S. Electricity Generation (2002-2013) 60.00% 50.00% 40.00% 30.00% 20.00% 10.00% 0.00% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Coal Natural Gas 11
Electric Sector Coal Consumption Chart Title 1200 1000 800 600 400 200 0 2008 2009 2010 2011 2012 2013 2014 Coal Consumption Estimate
An ILB Leader Sums Up We have the absolute destruction of the American coal industry. If you think it's coming back, you don't understand the business, Murray Energy CEO Bob Murray remarked to hundreds of coal industry executives at the Platts 37th Coal Marketing Days. Or you're smoking dope. Murray further claimed that publicly traded companies like Peabody are being dishonest with their investors for public relations purposes about the future of coal. You got to be the low-cost producer every day, in every region. Everything else is public relations garbage by public companies that are worried about stock prices, Murray said.
ILB: Growth Story Only major growth story in US Coal markets Since 2009 25% growth, CAPP down 14% 2012 127.5 mtpa; 2013 132 mtpa Why growth story? High BTU, high sulfur coal Scrubbers more intense emissions goals seen helping ILB producers, most retirements CAPP Lower cost of production Solid Margins
ILB: Fundamentals Basic Economics Prices Received: 2012: $49.20 Costs of Production: $34.93 Margins in: $14.00 to $30.00 range Despite erosion in prices in 2013-2014: $44.00 per ton, Basin still growing. ILB cost of production rose by 6% per year since 2007, CAPP up over 8% per year.
Investment Taking Place Major Companies all expanding operations with new mines in construction and under permit Largest Producers Peabody, Alliance, Foresight, Murray and Armstrong Strong cast of smaller players: Knight Hawk (Arch), Vectren, Hallador
Exports and Potential Companies geared up for more exports Foresight led in 2012 with 7.7 mtpa off based of 16 mtpa. 2013 and current year price collapse globally, lower exports approximately 7 mtpa. Port of New Orleans 92% of ILB exports - multiple terminals and Port of Mobile
Exports and Potential Where is market Americas (Canada, Chile, Mexico) Europe (France, Great Britain, Germany, Spain) Asia (China, India and South Korea)
Risks Although margins are solid for Foresight and Alliance Arch, Peabody hurt by price erosion. How long can they handle low prices Soft global markets undermine larger efforts of combining domestic and export mix. Old Customers buying more Duke, TVA, Southern, but in context of overall coal demand decrease.
