coal price outlook - economics & country risk … price outlook: a carbon premium or discount?...

Coal Price Outlook:A Carbon Premium or Discount?

David Goldsack Senior Consultant for Coal

Copyright © 2007 Global Insight, Inc. 2

…Probably Neither: Coal Will Continue to Set Its Own Levels

• Will continue to be driven by Australian cost• As always freight will play an

important role• The supply/demand balance

will improve to soften prices • The future direction

of the dollar is crucial


History Tells Us –We’ve Been There Before.

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1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

$/tc

e

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Mt

Delivered Prices to EU Power Stations in Nominal $/tceDelivered Prices to EU Power Stations in 2006 $/tceJapanese Benchmark FOB Australia Nominal $/tceJapanese Benchmark FOB Australia 2006 $/tceSeaborne Trade Historical (Right Scale)


Steam Coal Price Outlook

• Market operation market and price drivers

• Review of costs and prices

• Forecasts

• Coal vs. other fuels



Market Operation – The “Atlantic Deficit” in Action 2006

In price setting, international ocean sea freight rates play a significant role.

In price setting, international ocean sea freight rates play a significant role.

Australia’s role as the price driver to the world now leaves all

other countries as price takers

Australia’s role as the price driver to the world now leaves all

other countries as price takers


Australia’s Price Setting Role –C&F ARA

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Colombia S. Africa Indonesia Russia Australia Australia

2006 2007

U.S

.$/T

onne

(600

0 K

cal/k

g ne

t as

rece

ived

)

Jan/October 2007 FreightOcean Freight Average 2006ROC + ProfitInland Transport & HandlingAverage Mine Cash Cost 2007 Average Mine Cash Cost 2006

Average ARA Price 2006 2007 YTD$66.90 $88.20

Average Australian Cost 2006 2007 YTD

$64.25 $88.80





• Forecasts




Estimated Cash Costs Fob Port of Loading – 2007

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0 25 50 75 100 125 150 175 200Million Metric Tonnes of Export

US

Dol

lars

/Ton

ne F

ob B

asis

600

0 N

ec

Indonesia

South Africa

AustraliaChina

Russia

Colombia

Venezuela


Exchange Rate Fluctuations Impact Cash Costs

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Australia SouthAfrica

Russia China Australia SouthAfrica

Russia China

2002 2007 (2002 Exchange rates)

U.S

.$/T

onne

Bas

is 1

1,30

0Btu

/lb g

ar Mine Wages Other Mine Costs

Transport & Port Royalties

$ Effect Wages $ Effect Mine$ Effect Rail/Port $ Effect Royalty


Exchange Rates Play a Major Role — As History Shows

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Austalian dollarColombian pesoChinese yuanIndonesia rupiahRussian rubleSouth African rand


Exchange Rates Play a Major Role — As Does Forecast

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2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

Australian dollarColombian pesoChinese renmimbiIndonesia rupiahRussian roubleSouth African rand


Forecast of Fob Cash Costs –Basis 6000 nec

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2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

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Australia NominalAustralia RealSouth Africa NominalSouth Africa RealRussia NominalRussia Real





• Forecasts




Short-term Forecast

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120

02Q1 03Q1 04Q1 05Q1 06Q1 07Q1 08Q1 09Q1 10Q1

2006

U.S

.$/T

onne

Bas

is 6

,000

nec

Weighted Average freight ARA 2006/t

Weighted Average Coal fob 2006/t


Short-term Forecast (Early November) vs. Forward Curve

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03Q1 03Q4 04Q3 05Q2 06Q1 06Q4 07Q3 08Q2 09Q1 09Q4 10Q3

US

Dol

lars

/tonn

e

"TFS API#2 ®" 16/11/2007

C&F ARA

Global Insight Forecast


Recent History of API#2 Forward Market

Q407Q3 07

Q4 0550

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130

05Q4 06Q2 06Q4 07Q2 07Q4 08Q2 08Q4 09Q2 09Q4 10Q2 10Q4 11Q2 11Q4

U.S

. $/t

C&F

ARA

Basi

s 60

00 n

ec

Q407 Q3 07 Q2 07Q1 07 Q4 06 Q3 06Q2 06 Q1 06 Q4 05


Long-term Forecast

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1995 1999 2003 2007 2011 2015 2019 2023 2025

2006

U.S

.$/T

onne

Bas

is 6

,000

nec

Weighted Average Freight ARAWeighted Average Coal FOB


Long-term Forecast in Context of History

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1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024

U.S.

$/T

ce

C&F ARA EU Historical Average ARA Price 1985 - 2006Global Insight Forecast C&F ARA





• Forecasts




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800

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

U.S.

$/T

oe

Dated BrentHSFO (ARA)NBP GasCoal (ARA)Russian Gas - Waidhaus

Comparison of All Fuels to End October 2007 – (Nominal)


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2008 2010 2012 2014 2016 2018 2020 2022 2024

2006

$/T

oe

Waidhaus Gas Forecast + Carbon at 55% Efficiency

ARA Coal Forecast + Carbon at 40% Efficiency

Forecast vs. Gas Forecast

Assumes CO2 at €22.50/t real

Thank You

David GoldsackSenior Consultant for Coal

[email protected]

coal price outlook - economics & country risk … price outlook: a carbon premium or discount?...

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