Coal Market Prices 01.08.14

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Copyright 2014 Argus Media Ltd

Argus Coal Daily International

Issue 14R-148 Friday 1 August 2014

PRICESNEWS AND ANALYSIS

Coal market prices, news and analysis

Americas

11,300 Btu GAR


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Copyright 2014 Argus Media Ltd Page 2 of 10

Issue 14R-148 Friday 1 August 2014Argus Coal Daily International

Argus Richards Bay spot coal assessment $/t

65

70

75

80

85

90

25 Jul 13 25 Nov 13 28 Mar 14 01 Aug 14

Trades - Europe (cif ARA)

Date Volume PriceDeliveryperiod

Buyer Seller EFP Broker Index relevant

28 Jul 14 50,000 78.00 Sep 2014 No GlobalCoal Yes

28 Jul 14 50,000 77.50 Sep 2014 No GFI Yes

28 Jul 14 50,000 78.40 Oct 2014 Yes GlobalCoal Yes

29 Jul 14 50,000 74.00 Aug 2014 No GlobalCoal Yes

29 Jul 14 50,000 78.10 Oct 2014 No Atlantic Yes

30 Jul 14 50,000 74.00 Sep 2014 No GlobalCoal Yes

31 Jul 14 50,000 74.75 Oct 2014 No GlobalCoal Yes

1 Aug 14 50,000 75.00 Oct 2014 No GlobalCoal Yes

1 Aug 14 50,000 76.50 Sep 2014 No GlobalCoal Yes

Trades - South Africa (fob Richards Bay)

Date Volume Price Deliveryperiod

Buyer Seller EFP Broker Index relevant



1 Aug 14 50,000 70.25 Aug 2014 No GlobalCoal Yes

Argus cif ARA spot coal asessment $/t

70

75

80

85

90

95

25 Jul 13 25 Nov 13 28 Mar 14 01 Aug 14

months of this year, and is expected to increase imports to

replace lost domestic output following the closure of UK

Coals deep pit mines.

Germany imported 11.8mn t of Russian coal last year,

accounting for 23pc of total coal imports of 50mn t.South African physical spot prices continued to trade

at a discount to Europe, but the differential narrowed as

price falls on API 2 outpaced those on API 4. South Africa

started the week at a discount of $5.13/t to Europe, which

narrowed to $3.08/t by midweek. At the close of the week

the differential had again widened to $4.30/t. Spot trade

remained subdued, with just three 50,000t August dealsdone this week. The API 4 weekly index closed at $71.79/t,

up by 59/t on the week.


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Forward prices $/t

Timing Buy Sell Average

cif ARA (Rotterdam) API 2

September 75.80 76.30 76.05 na

4Q14 75.95 76.45 76.20 nc

1Q15 76.95 77.45 77.20 nc

2Q15 77.40 77.90 77.65 -0.05

3Q15 78.65 79.15 78.90 -0.15

4Q15 80.05 80.55 80.30 na

2015 78.25 78.75 78.50 -0.05

2016 81.75 82.25 82.00 -0.05

2017 83.80 84.30 84.05 -0.10

fob Richards Bay South Africa API 4

September 71.25 71.75 71.50 na

4Q14 72.00 72.50 72.25 -0.20

1Q15 73.15 73.65 73.40 -0.35

2Q15 73.40 73.90 73.65 -0.30

3Q15 74.40 74.90 74.65 -0.20

4Q15 75.45 75.95 75.70 na

2015 74.15 74.65 74.40 -0.15

2016 77.40 77.90 77.65 -0.05

2017 79.50 80.00 79.75 -0.10

API 2 premium to API 4

Prompt 4.30 4.80 4.55 +0.15

South Africa to Europe, implied freight rate

4Q14 3.90 4.00 3.95 +0.20

1Q15 3.75 3.85 3.80 +0.35

2Q15 3.95 4.05 4.00 +0.25

3Q15 4.20 4.30 4.25 +0.05

4Q15 4.55 4.65 4.60 na

2015 4.05 4.15 4.10 +0.10

2016 4.30 4.40 4.35 nc

2017 4.25 4.35 4.30 nc

Swaps vs physical API 2 $/t

70

71

72

73

74

75

76

77

78

79

04 Apr 14 16 May 14 25 Jun 14 01 Aug 14

Swaps Physical

SWAPS

Falling physical prices drag API 4 swaps lowerPrices in the South African paper market fell by 5-50/t

across the curve today, dragged lower by weaker physicalprices.

The greatest losses were seen at the front of the

curve. September today became the prompt month and

the contract lost 50/t on the day to close at $71.50/t.

South African physical prices have rallied in the last couple

of weeks, tracking the rise of API 2 which increased on

the expectation that the EU would impose wide-ranging

sanctions against Russia.

But the new sanctions did not target the Russian coal

industry directly, and South African prices have since fallen

back towards the $70/t mark. Todays daily fob Richards Bay

assessment came in at $70.57/t, $2.13/t lower than the priceat the start of the week.

Losses at the back of the curve were less severe in the

API 4 swaps market, suggesting the contango is likely to

begin to widen. The calendar 2015 contract lost just 15/t

to close at $74.40/t, widening its premium to the prompt

month to $2.90/t. The contango had stood at $4.30/t on 16

July, the day before a Malaysian Airlines plane was allegedly

shot down by pro-Russian rebels. But the prompt month

contract then rose more steeply on the threat of Russian

sanctions, and the contango narrowed to $2.20/t on 30 July.

In the European physical market, prices rose as two

50,000t cargoes traded. The rst shipment, for Septemberdelivery, priced at $76.50/t des Rotterdam, $2.50/t higher

than a September deal done on 30 June. On the follow,

an October cargo traded at $75/t des Rotterdam, 25/t

higher than an October deal done yesterday. The daily cif

ARA assessment came in at $75.65/t, 42/t higher than

yesterdays price.

Forward prices $/t

Timing Midpoint

cfr south China 5,500 API 8

September 66.60 +0.05

October 67.60 na

4Q14 68.25 +0.30

1Q15 69.40 +0.20

2Q15 70.30 +0.20

3Q15 70.60 na

2015 70.70 +0.25


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UK spark spreads

Country Price Spark Spread Conversion

Power /MWh UK 37.30 - - $/MWh equivalent 62.78 - -

Coal $/t Rotterdam 75.65 - -

$/MWh equivalent 10.84 34.25 38%

Gas p/th NBP 40.53 - -

$/MWh equivalent 23.27 15.41 49.13%

Fuel oil $/t Rotterdam 595.25 - -

$/MWh equivalent 49.72 -68.06 38%

Germany spark spreads

Country Price Spark Spread Conversion

Power /MWh Germany 34.50 - - $/MWh equivalent 46.34 - -

Coal $/t Rotterdam 75.65 - -

$/MWh equivalent 10.84 17.81 38%

Gas /MWh Gaspool 17.68 - -

$/MWh equivalent 23.74 -1.98 49.13%

Fuel oil $/t Rotterdam 577.50 - -

$/MWh equivalent 48.24 -80.60 38%

GENERATING COSTS

German spark spreads $/MWh

-30

-20

-10

0

10

20

30

25 Jul 13 25 Nov 13 28 Mar 14 01 Aug 14

Coal Gas

UK spark spreads $/MWh

0

10

20

30

40

50

60

70

25 Jul 13 25 Nov 13 28 Mar 14 01 Aug 14

Coal Gas

UK spark spreads for varying degrees of power station efciency

Commodity Spark spreads at varying conversion rates (/MWh)

Fuel type Fuel (/MWh)Electricity, month-ahead

(/MWh)0.34 0.38 0.491 0.55

Base loadMonth-ahead gas, NBP 13.83 37.30 -3.37 0.91 9.15 12.16

Carbon credits 2.06 37.30 -6.35* -1.75* 7.09* 10.32*

Coal, cif ARA 6.44 37.30 18.35 20.35 24.19 25.59

Carbon credits 4.50 37.30 13.32* 15.85* 20.71* 22.48*

Peak load

Month-ahead gas, NBP 13.83 41.00 0.33 4.61 12.85 15.86

Carbon credits 2.06 41.00 -2.65* 1.95* 10.79* 14.02*

Coal, cif ARA 6.44 41.00 22.05 24.05 27.89 29.29

Carbon credits 4.50 41.00 17.02* 19.55* 24.41* 26.18*

German spark spreads for varying degrees of power station efciency

Commodity Spark spreads at varying conversion rates (/MWh)

Fuel type Fuel (/MWh) Electricity, month-ahead(/MWh)

0.34 0.38 0.491 0.55

Base load

Month-ahead gas, Gaspool 17.68 34.50 -17.48 -12.01 -1.48 2.36

Carbon credits 2.58 34.50 -21.22* -15.35* -4.06* 0.06*

Coal, cif ARA 8.07 34.50 10.76 13.26 18.07 19.82

Carbon credits 5.64 34.50 4.46* 7.62* 13.71* 15.93*

Peak load

Month-ahead gas, Gaspool 17.68 40.25 -11.74 -6.26 4.27 8.11

Carbon credits 2.58 40.25 -15.47* -9.60* 1.69* 5.81*

Coal, cif ARA 8.07 40.25 16.51 19.01 23.82 25.57

Carbon credits 5.64 40.25 10.20* 13.37* 19.46* 21.68*

*clean spark spread


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Other spot freight $/t

Route/Size Rate

East coast Australia to south China 150,000t 9.75 -0.65

Richards Bay to south China 150,000t 12.10 nc

Richards Bay to Krishnapatnam 150,000t 10.00 -1.00

Asia-Pacic freight analysis (Panamax 60,000t size) $/t

Freight Delay Delivery Delivered Landed

Origin Destination rate (days) cost 1 cost 2 cost 3

Australia Japan 13.55 4 14.14 83.53 82.94

Australia S Korea 13.35 4 13.94 83.33 82.74

Indonesia 6,500 kcal Japan 6.30 0 6.30 79.58 79.58

Indonesia 5,800 kcal Japan 6.30 0 6.30 69.62 69.62

Indonesia 5,800 kcal S Korea 6.20 0 6.20 69.52 69.52

Indonesia 5,800 kcal China 5.25 0 5.25 68.57 68.57

Indonesia 5,000 kcal S Korea 6.20 0 6.20 57.36 57.36


Indonesia 4,200 kcal India 7.40 0 7.40 43.95 43.95


Indonesia 3,400 kcal India 7.40 0 7.40 31.18 31.18(1) Delivery cost = Argus freight rate plus demurrage delays at load port plusbunker costs for the specic voyage

(2) Delivered cost = Delivery cost plus cost of coal

(3) Landed cost = Argus freight rate plus cost of coal

Spot freight to Rotterdam $/t

Port Country Rate

Cape

Richards Bay South Africa 7.90 nc

Puerto Bolivar Colombia 7.80 -0.05

Panamax

Richards Bay South Africa 12.10 nc

Puerto Bolivar Colombia 11.80 nc

Murmansk Russia 5.60 nc

SHIPPING COSTS

Richards Bay-Rotterdam, Capesize $/t

7

8

9

10

11

12

13

14

15

16

25 Jul 13 25 Nov 13 28 Mar 14 01 Aug 14

Puerto Bolivar to Rotterdam, Capesize $/t

6

8

10

12

14

16

18

20

25 Jul 13 25 Nov 13 28 Mar 14 01 Aug 14

Puerto Bolivar to Rotterdam, Panamax $/t

10

11

12

13

14

15

16

17

18

19

20

25 Jul 13 25 Nov 13 28 Mar 14 01 Aug 14

Australia to south China, Capesize $/t

8

10

12

14

16

18

20

25 Jul 13 25 Nov 13 28 Mar 14 01 Aug 14


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COAL MARKET NEWS

Asia

cfr south China 5,500 kcal 65.47fob Qinhuangdao domestic 77.73

Australia

fob Newcastle 6,000 kcal 69.39

fob Newcastle 5,500 kcal 55.76

Colombia

fob Puerto Bolivar 69.15

Europe

cif ARA 75.65

cif Marmara 92.75

cif Iskenderun 80.50

Russia

fob Baltic ports 70.00

fob Vostochny 76.00

South Africa

fob Richards Bay 6,000 kcal 70.57

fob Richards Bay 5,500 kcal 62.81

United States

fob Hampton Roads 6,000 kcal 81.50

fob New Orleans 6,000 kcal 78.50

Utilities continue to draw down well-stocked inventories

at northern Europes Amsterdam-Rotterdam-Antwerp (ARA)

ports, and consumption is not expected to pick up untiltemperatures drop in the third quarter.

Freight rates for Panamax vessels from the Baltic Sea

ports of Ust-Luga, Ventspils and Riga to ARA was assessed at

$6/t, unchanged from last week.

In the Asia-Pacic market, the price for 6,000 kcal/kg

Russian coal was assessed at $76/t fob Vostochny, unchanged

from the previous week amid low demand for prompt

Russian coal deliveries on the Asian market.

A large Russian producer is refusing to sell its coal on

the spot market at current price levels, choosing instead to

stockpile it at a port in Russias far-east until prices rm.

Freight rates for Panamax vessels from the Russian fareastern port of Vostochny to South Korea and Japan declined

by 40/t from last week to $3.60/t and $4.20/t respectively.

Rates from Vostochny to Taiwan and China decreased by

50/t to $4.10/t and $4.30/t respectively.

Inaction eases Turkish supply fearsA lack of coal sanctions against Russia have alleviated

concerns over the availability of Russian coal shipments

to Turkey, with Turkish prices now expected to slip back

following last weeks jump.

The US and EU on 30 July ended two weeks of

uncertainty by conrming new sanctions over Russiasinvolvement in Ukraine after the shooting down of Malaysian

Airlines ight MH17 in the east of Ukraine. But with the

energy-related impact of the sanctions largely conned to

oil exploration, it is unlikely that Russian coal exports will besignicantly affected.

The alleviation of supply concerns is expected to weigh

on Turkish coal prices, undoing last weeks $1/t jump to

$91-93/t cif Marmara, which was driven by uncertainty

over future shipments. Russian coal accounted for 41.1pc of

Turkeys thermal coal imports in 2013, with volumes totalling

8.57mn t.

The Turkish spot market is coming under further pressure

from sinking European delivered prices. The daily index

tumbled by nearly $3/t on 28-30 July to a 10-day low of

$74.88/t, as renewed supply condence undermined last

weeks gains. Delivered prices have since edged up to$75.65/t.

Trade remained subdued in the Turkish spot market this

week, with many market participants observing Ramadan

and Eid al-Fitr. But with Eid al-Fitr ending on 31 July, activity

is expected to pick up over the next week.

Low stock levels leave southern India exposedFalling stock levels at Indias coal-red plants and a weaker-

than-usual monsoon has left the south of India particularly

exposed to energy shortages.

Combined stock levels at Indias 100 coal-red power

plants are now touching record lows, after dipping below the10mn t mark for the rst time on 27 July. Stock levels stood


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Indo miners struggle with export economics

Small-scale Indonesian coal producers are struggling tobalance the economics of exporting thermal coal, as adverse

weather conditions thwart attempts to pull down unit costs,

and low seaborne prices persist.

Several mining rms have reported worsening project

economics, after heavy rainfall in the second quarter

hampered attempts to lower unit costs. Kalimantan-focused

producer Altura saw 913mm of rainfall at its operations over

April-June, which compares with just 566mm in the rst

quarter of 2014.

Both Altura and mining rm Orpheus Energy saw their

operational performances dented by the wet conditions,

with Altura yesterday reporting that contractor productivityremained below plan. Orpheus has struggled to achieve

economies of scale, with rainfall restricting output to just

3,258t over the second quarter.

Improving productivity is crucial to Indonesian coal

exporters remaining operational, while seaborne prices

continue to fall. Altura reported an average selling price (ASP)

of $43.35/t for its mid-rank thermal coal in April-June, down

from $44.82/t in the previous quarter. Orpheus reported a

2.8pc quarter-on-quarter price decline, achieving an ASP of

$37.50/t for its 4,200 kcal/kg material over April-June.

Weak seaborne prices have caused some Indonesian

rms to review their selling strategies, with Australia-listedproducer Realm Resources now focusing its attention more

heavily on the domestic market after its export ASP dropped

to around $36/t. In particular, the rm aims to sell output

from its 2.5mn t/yr Katingan Ria mine to state-owned utility

PLNs new 200MW power plant near Kasongan.

The loss of some Indonesian thermal coal exporters is

crucial to alleviating global oversupply, and to the recovery

of seaborne prices which are at multi-year lows. With the

Indonesian government so far failing to limit the countrys

output through regulation, it is expected that production will

be curtailed by cost pressures forcing mining rms to close

operations and sell off assets as they become unviable.Orpheus last month conrmed that it has sold Indonesian

assets including coal worth around $8.2mn to various

parties, after they failed to generate sufcient prots. The

sale will result in a total prot to Orpheus of around $3.9mn.

Polands Weglowa sells coal minePolands largest producer Weglowa has sold one of its mines

to rival Polish producer Jastrzebska Spolka Weglowa (JSW)

to raise funds to turnaround its loss-making operations.

Weglowa secured 1.49bn zlotys ($479mn) for its Knurow-

Szczyglowice mine that has capacity to produce 3.8mn t/yr

including 2.4mn t/yr of thermal coal. The mine also produces

about 1.4mn t/yr of coking coal and is therefore a t for the

coking-coal specialist, which plans to expand its capacity. JSWlast year produced 14.6mn t of coal and intends to increase its

output to 18.5mn t/yr from 2019 onwards.

JSW with a focus on coking coal is in a better

nancial position than thermal coal specialist Weglowa.

The asset sale with JSW is the second for Weglowa since

2013 when it sold its stake in mines to Tauron electricity

producer. Weglowa was producing about 35mn t/yr of

thermal coal until recently, but currently is in the process of

downsizing output dramatically because of liquidity problems.

The funds from the JSW deal will provide Weglowa with a

lifeline to continue operations although the company recently

said the risk of bankruptcy remains a reality. The Polishproducer is struggling with increasing competition from low-

cost imports and pressure on domestic coal prices.

Prices of Polish thermal coal edged up by 3.7pc in the

last two months, reaching nearly 250 zlotys/t ($83/t) in June,

after falling in April to the lowest level in 4 years. But the

price increase did not provide much comfort for Weglowa,

as stocks of unsold thermal coal in Poland reached a record

high of 8.6mn t at the end of June, according to gures from

Polands ARP agency which monitors coal mines. Weglowa

owns the overwhelming majority of unsold Polish inventory.

The company until recently was not able to sell coal from

stocks as they were blocked by banks as guarantees for thecompanys debt.

The Polish rm is also being hit by rising imports, which

continue to increase despite overall decline of thermal coal

burn in Poland this year. Poland imported 3.3mn t of thermal

coal in January-May, 8pc more on the year. Imports from

Russia dominate at 3mn t in January-May, up by 28pc year

on year, according to ARP data. Polands end-users have

increased purchases of Russian coal despite its higher price

because of its higher caloric value, the better availability of

sized coal for households and favourable transport logistics,

as they can supply customers in northern and eastern Poland,

which are located far from domestic coal mines.

Guildford to sell Australian coal assetsAustralia-listed Guildford Coal has agreed to sell its

Australian coal assets to Singaporean investment rm Sino

Construction for A$25mn ($23.25mn), although Guildford will

remain the sole manager of the assets it is selling.

The assets include the undeveloped thermal and

coking coal deposits Clyde Park, Pentland, Springsure and

Hughenden, located in the Galilee and Eromanga basins in

Queensland. Other assets include the Sunrise project in

the Surat basin in Queensland, the Monto project in the

COAL MARKET NEWS


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COAL MARKET NEWS

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Nagoorin Graben basin, the Sierra project in the Bowen

basin and the Kolan project in the Maryborough basin.

Guildford has put the development of its Australian coalassets either on hold, or dramatically slowed down their rate

of progress, since thermal and coking coal prices started

their downward trend three years ago. It has turned its

focus to Mongolia, where it is developing the Baruun Noyon

Uul coking and thermal mine in the South Gobi region, with

production expected to start before the end of the year.

The acquisition price will consist of $25mn payable by a

way of a non-interest bearing convertible promissory note,

which matures in six months after issue, Guildford said. A

royalty of 35/t of coal sold from all of Guildfords Australian

coal assets will be paid by Sino, with the royalty payable for

ve years from the date at which coal production starts.The deal is subject to Sino completing its due diligence,

as well as the relevant approval from regulatory authorities

being gained, Guildford said.

Announcement: Argus successfully completes

assurance review

Argus has successfully completed an external assurance reviewof its generating fuels and coking coal price benchmarks,including those for coal markets. The review was carried outby professional services rm PwC. An annual independent andexternal review of non-oil benchmark prices is encouraged byinternational regulators under Ioscos Principles for Oil PriceReporting Agencies (the PRA Principles).For more information and to download the report visit ourwebsite http://www.argusmedia.com/About-Argus/How-We-Work

Documents

Coal Market Prices 01.08.14