International Coal Trade and Price Developments in 2003 · 1971 2000 2010 2020 2030 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 OECD Developing countries Energy demand

International Coal Trade and PriceDevelopments in 2003

by Dr. Domenico Maiello

United Nations Economic and Social CouncilEconomic Commission for Europe - Committee on Sustainable Energy

Sixt session - Geneva, 17/18 November 2003Ad hoc Group of Experts on Coal in Sustainable Development

2

World

01971 2000 2010 2020 2030

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

OECD

Developingcountries

Energy demand worldwide: 1971 to 2003 and trend to 2030

source: World Coal institute - The Role of Coal - 2003

Mill

ion

tonn

es o

il eq

uiva

lent

(M

toe)

Energy is a fundamental driver of economicdevelopment and contributor to people’s quality of life.It sustains the living standards of developedcountries to a high level of comfort and convenienceand in the developing world it leads people out ofpoverty.

3

Energy security: proven reserves of fossil fuels worldwide


There is effectively no limit on the availability ofcoal into the future.This places coal in a uniqueposition in a world where reliable supplies ofaffordable energy are essential for continuing global development.

4

The role of coal in a sustainable development horizon


5

World primary energy demand

source: International Energu Agency - World energy trend - 2002

To attain more sustainable use of primary energy coal should be used in larger percentages and oil and gas in lower quantities.

The phasing out of nuclear would greatly accelerate the depletion of all primary energy friendly sources

6

Natural coal - World primary demand by sector

source: International Energu Agency - World energy trend - 2002

World reserves of coal are enormous. Compared with oil and natural gas, they are widely dispersed. Economically recoverable coal reserves are estimated at close to one trillion tonnes, or about 200 years of production at current rates.

Coal demand is expected to be strongest in the developing world and the transition economies, where local supply is ample and production costs are low. The lack of indigenous gas resources will bolster coal use in several countries, particularly India and China.

In all regions, coal use becomes increasingly concentrated in power generation, which will account for almost 90% of the increase in demand between 2000 and 2030, and will continue to play its unfungible role in coke making for the growing World Steel Industry.

7

Coking coal prices in 2003

AFTER THE SURPRISING CAPITULATION OF SELLERS IN EARLY 2003, WITH A REDUCTION OF FOB PRICES IN THE ORDER OF US$ 2.00 PER T.M. (and with a roll over on cfr prices mostly from Queensland to European destinations), THE MARKET HAS PROVEN THAT THE DEMAND IS PREVAILING ON THE AVAILABILITY AND PRICES HAVE KEPT CLIMBING WITH ACUTE SHORTAGES (specially for the premium qualities).DUE TO MINE'S ACCIDENT IN AUSTRALIA AND THE U.S.A.. THE NEED TO INCREASE PCI AND GCI FOR BLAST FURNACES TO COPE WITH COKE SHORTAGE HAS INCREASED THE DEMAND FOR PREMIUM COKING COALS ADDING SHORTAGE TO SHORTAGE.THE RUSH TO SECURE THE AVAILABLE TONNAGE HAS PUT IN MOTION THE SPIRAL OF PORT CONGESTION WHICH HAS ATTAINED UNPRECEDENTED LEVELS TOWARD THE END OF THE YEAR.SPOT PRICES FOR THE RARE TONNAGES AVAILABLE HAVE CLIMBED BY US$ 15 - 20 TM ABOVE THE ANNUAL CONTRACT PRICES AND ARE DUE TO REACH HIGHER LEVELS STILL.

source: Market Intelligence

8

Coking coal prices trend for 2004

FOR 2004 NEGOTIATIONS, AT THIS STAGE, OPTIMISTIC FORECAST ARE FOR INCREASES IN THE ORDER OF US$ 10 - 15 TM ON FOB EXPORTS. THIS WOULD MEAN FOB PRICES IN THE ORDER OF US$ 58 to US$ 63 FOB FOR AUSTRALIAN AND CANADIAN COKING COALS AND OF US$ 65 to US$ 70 TM FOB FOR APPALACHIAN COKING COALS. PCI AND GCI COALS ARE DUE TO CLIMB ABOVE THE US$50 TM OR POSSIBLY MORE.FOR CFR SALES THERE IS NO POSSIBILITY OF FORECASTING ANY EVENTUAL LEVEL DUE TO SEA FREIGHT RATES BEING OUT OF CONTROL IN THIS PHASE OF THE MARKET.CHINA’S SHORTAGE OF FURNACE COKE FOR EXPORTS, AND ITS GROWING NEED FOR COKING COAL IMPORTS (1Omty in 2004?), ARE SURELY ADDING TENSION TO THE MARKET WHICH IS IN THE MIDDLE OF MANY MINING PROBLEMS AFTER MORE THAN A DECADE OF UNREASONABLE PRESSURE ON EXPORT PRICES. THE WEAK LEVEL OF THE U.S.A. DOLLAR IS ADDING INCERTITUDE AND RISKS TO THE ABOVE SITUATIONS, SO AS, ARE NOT ADDING RELAX TO THE MARKET THE ON GOING RAZIONALIZATIONS OF THE COAL INDUSTRIES IN POLAND, RUSSIA, UKRAINA, and CHINA.


9

Steam coal prices

THE STEAM COAL MARKET THAT IN THE FIRST QUARTER OF 2003 WAS A SHADOW AWAY FROM MASSIVE CLOSURE OF MINES IN ALL COUNTRIES WERE THE DECLINE OF THE U.S.$ WAS CURTAILING BADLY MINE'S INCOME, DUE TO THE INCREASED DEMAND, STARTED TO CLIMB QUITE RAPIDLY IN THE SECOND HALF OF THE YEAR. SEA-FREIGHT EXPLOSION OVER THE LAST TWO QUARTERS IS GENERATING UNPRECEDENTED DELIVERED COSTS FOR THE POWER PLANTS DEPENDING UPON IMPORTED STEAM COAL.


Are Chinese ignoring Korean tenders?It appears Ch in ese exporters stayed away from th ree

South Korean spot ten ders for a com bin ed 19 pan am ax sh ip-

m en ts h eld yesterday, with bids com in g from suppliers of

coal from Russia, In don esia an d Australia, sources said .

Korea South -East Power (Kosep), wh ich ten dered for n in e

pan am ax sh ipm en ts of low-su lfur coal for delivery Nov. 16

to Dec. 31, received offers for five cargoes of In don esian coal

(in cludin g a bid from Glen core) an d from th ree firm s offer-

in g Australian coal (Xstrata, Rio Tin to an d Peabody).

Korea East-West Power (Kewespo), wh ich sough t th ree

pan am ax sh ipm en ts for delivery in m id- to late Novem ber,

received offers for In don esian an d Australian coal, with on e

source sayin g Glen core subm itted an offer for In don esian

m aterial.

Korea Western Power (Kowepo) h ad called for offers for

seven pan am ax sh ipm en ts for delivery Jan . 1 to Feb. 29. It

received offers from Glen core for Russian coal, Xstrata for

Cum n ock coal from Australia, an d for In don esian coal pro-

duced by Tan ito Harum , Bukit Baiduri, Baram ulti Sugih

Sen tosa an d Kalt im Prim a.

China, Korea plan Nov. 20 price talksCh in ese an d South Korean n egotiators are to m eet again

for an oth er roun d of 2003 con tract price talks in Seoul on

Nov. 20 after failin g to reach an agreem en t in Beijin g last

week, in dustry sources said .

In th e Beijin g talks, represen tatives of Korea's five th er-

m al gen cos served n otice th ey were already willin g to accept

th e Ch in ese suppliers' previous $28/m t con tract price offer

wh ich th e Korean s h ad previously rejected, th e sources said .

Mean wh ile, th e Ch in ese h ad already ch an ged th eir offer

to $32/m t bu t th e Korean s rejected th at also, resu lt in g in th e

talks’ failu re, th ey added.

Th e Ch in ese h ad asked th e Korean s to h ave on ly on e

lon g-term con tract for Ch in ese coal with th e gen cos, sim ilar

to Japan 's bilateral LT arran gem en t, th e sources said .

But a Korean gen co source said lum pin g togeth er all th eir

lon g-term con tracts in to just on e was n ot acceptable to th e

Tuesday, 4 November 2003

www.platts.com]Coal Trader International

The McGraw Hill Companies

Current spot freight rates ($/mt)

Cape Panamax

South Africa - Richards Bay

Rotterdam 26.50 24.00

Spanish Med. 25.25

Jorf Lasfar 25.25

Australia - New South Wales


Korea 22.35

Cape Panamax

Australia - Queensland


Iskenderun 34.00

Japan 18.10

Colombia - Puerto Bolivar

Rotterdam 20.40

Malaki 22.50

China

Rotterdam 32.35Source: SSY

Platts OTC Benchmark Coal Prices (US$/mt)

Dec Ch/ Date Jan Ch/ Date Feb Ch/ Date Q1 04 Ch/ Date

ARA 62.25 1.00 27-Oct-03 62.25 0.25 03-Nov-03 62.00 -- 03-Nov-03 62.00 0.25 03-Nov-03

Richards Bay 38.50 0.30 03-Nov-03 38.50 0.25 03-Nov-03 38.25 -- 03-Nov-03 38.00 0.25 03-Nov-03

Bolivar 41.30 0.10 03-Nov-03 41.20 -0.55 03-Nov-03 41.20 -- 03-Nov-03 41.00 -0.75 03-Nov-03

Newcastle 28.00 0.40 13-Oct-03 28.00 0.40 03-Nov-03 27.60 -- 03-Nov-03 27.50 -0.50 20-Oct-03

Qinhuangdao 33.00 3.20 04-Nov-03 33.00 3.20 04-Nov-03 33.00 3.80 04-Nov-03 33.00 4.25 04-Nov-03

Platts 90-Day-Forward Prices (US$/mt)

Port Price Change Date

Kalimantan 27.00 1.00 20-Oct-03

CIF Japan 47.50 -0.90 04-Nov-03

CIF Korea West 44.50 4.15 04-Nov-03

Coal Prices Physical

20

24

28

32

36

40

44

48

52

56

60

Aug

02

Oct

02

Dec

02

Feb

03

Apr

03

Jun

03

Aug

03

Oct

03

$/

mt

Europe CIF ARA Richards Bay

Newcastle CIF Japan

Platts Coal Trader International

10

Coal: the best buy of all fossil fuels for electricity generation

source: Global Coal - State of the globe report - october 22, 2003

1 adjusted for heat rate and average plant efficiency

SPOT ENERGY Prices for October 30, 2003

Price

GBP/MWh

245.8

Zeebrugge gas, prompt month* 31.04 4.74 29.50 p/th

USD/mt

31.37

$/GJ equiv $/MWh equiv1

Conti Power Index**** 51.4

56.11

59.79

UKPX Spot Price Index***

IPE Gas Oil, prompt month**

16.57

2.54 24.75

IPE Gas (NBP), prompt month 29.81 p/th 4.79

USD/mt

14.09 50.84 30.0

EUR/MWh

RBTM

Index + PM Freight RB to Rott 63.91

5.76

SPOT ENERGY USD/GJ Unadjusted for Heat Rate Adjusted for Heat rate and average plant efficency

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SPOT ENERGY USD/MWh

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Sources: * Petroleum Argus ** www.ipe.uk.com *** UKPX

**** Platts Spectron MA UK Power Index

Even in a booming market coal remain the best buy of all fossil fuels

11

ICR Steam Coal Marker Price 1991 – October 2003 (Spot CIF Price, NW Europe, $/t basis 6,000 kCal/kg NAR)

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003January 43,53 42,18 34,55 34,55 42,89 43,60 41,72 35,74 29,97 30,15 41,94 34,10 36,45

February 43,23 41,66 34,51 33,99 43,38 43,52 41,01 35,39 29,66 30,30 41,08 33,10 35,49

March 43,85 40,59 33,66 35,19 43,94 42,07 41,11 32,40 29,94 33,85 41,99 33,25 33,64

April 43,91 40,57 34,45 35,23 45,10 41,03 40,82 32,24 29,22 34,81 42,98 32,75 33,09

May 42,63 40,29 34,32 36,18 45,87 39,77 39,93 31,83 29,21 34,39 42,40 28,70 34,21

June 43,58 39,69 33,11 36,26 45,75 39,49 39,12 31,52 27,84 35,13 41,41 28,60 37,13

July 42,40 37,45 32,35 37,04 45,37 39,86 38,11 31,27 26,65 36,16 39,87 27,00 39,67

August 43,11 36,45 32,40 37,51 44,96 40,31 37,75 30,43 26,68 36,20 38,22 25,98 42,67

September 41,99 35,30 32,87 38,31 44,77 40,98 37,34 30,29 27,26 37,01 37,91 30,23 47,55

October 41,94 35,87 33,53 38,93 43,85 41,09 36,98 31,46 29,17 39,56 36,00 34,28 58,80

November 41,90 36,11 34,04 40,77 44,10 41,62 36,76 30,97 29,53 41,73 35,12 34,34

December 41,55 36,16 34,32 42,22 44,01 41,67 36,38 30,49 30,39 43,07 34,50 35,01

25

30

35

40

45

50

55

60

65

1991 1994 1997 2000 2003

(Spot CIF Price, NW Europe, $/t basis 6,000 kCal/kg NAR)

source: Platts ICR Coal Statistics Monthly

STEAM COAL (Spot Cfr prices NW Europe) WHICH HAD STARTED THE YEAR 2003 AT ULTRA DEPRESSED LEVELS, HAS PROGRESSIVELY CLIMBED AT RECORD LEVELS TOWARD THE END OF THIS YEAR. THE TREND IS DUE TO CONTINUE AT LEAST UNTIL SEA FREIGHT RATE STORMS DOES NOT RETURN TO A BALANCED SITUATION.

ICR Steam Coal Marker Price 1991 – October 2003 (Spot CIF Price, NW Europe, $/t basis 6,000 kCal/kg NAR)

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003January 43,53 42,18 34,55 34,55 42,89 43,60 41,72 35,74 29,97 30,15 41,94 34,10 36,45

February 43,23 41,66 34,51 33,99 43,38 43,52 41,01 35,39 29,66 30,30 41,08 33,10 35,49

March 43,85 40,59 33,66 35,19 43,94 42,07 41,11 32,40 29,94 33,85 41,99 33,25 33,64

April 43,91 40,57 34,45 35,23 45,10 41,03 40,82 32,24 29,22 34,81 42,98 32,75 33,09

May 42,63 40,29 34,32 36,18 45,87 39,77 39,93 31,83 29,21 34,39 42,40 28,70 34,21

June 43,58 39,69 33,11 36,26 45,75 39,49 39,12 31,52 27,84 35,13 41,41 28,60 37,13

July 42,40 37,45 32,35 37,04 45,37 39,86 38,11 31,27 26,65 36,16 39,87 27,00 39,67

August 43,11 36,45 32,40 37,51 44,96 40,31 37,75 30,43 26,68 36,20 38,22 25,98 42,67

September 41,99 35,30 32,87 38,31 44,77 40,98 37,34 30,29 27,26 37,01 37,91 30,23 47,55

October 41,94 35,87 33,53 38,93 43,85 41,09 36,98 31,46 29,17 39,56 36,00 34,28 58,80

November 41,90 36,11 34,04 40,77 44,10 41,62 36,76 30,97 29,53 41,73 35,12 34,34

December 41,55 36,16 34,32 42,22 44,01 41,67 36,38 30,49 30,39 43,07 34,50 35,01

25

30

35

40

45

50

55

60

65

1991 1994 1997 2000 2003

Steam Coal Marker Price January 1991 – October 2003

12

ICR Asian Marker Price 1998 – October 2003 (Spot CIF Price, US$/t basis 6,000kcal/kg NA

1998 1999 2000 2001 2002 2003January 34,54 27,79 28,08 36,65 31,95 32.94*

February 34,35 27,59 27,96 37,74 33,25 32.51*

March 33,06 27,69 28,88 39,09 33,62 31.78*

April 31,50 27,49 28,99 39,70 33,05 31.16*

May 31,43 28,31 29,50 39,87 28,30 32.01*

June 29,09 27,21 30,22 38,17 28,55 33.93*

July 27,20 27,09 31,42 37,26 27,05 35.07*

August 26,31 27,28 32,02 35,16 26,60 35.85*

September 25,54 26,24 34,98 35,05 27,88 36.71*

October 26,13 29,50 35,51 34,93 29,20 45.77*

November 27,11 28,69 35,80 32,05 30,93

December 27,45 28,93 37,75 31,05 31.95*

* ICR Asian marker replaced by ICR Japan CIF

25

30

35

40

45

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

From December 2002 ICR Asian marker replaced by ICR Japan CIF

ICR Asian Marker Price 1998 – October 2003 (Spot CIF Price, US$/t basis 6,000kcal/kg NA

1998 1999 2000 2001 2002 2003January 34,54 27,79 28,08 36,65 31,95 32.94*

February 34,35 27,59 27,96 37,74 33,25 32.51*

March 33,06 27,69 28,88 39,09 33,62 31.78*

April 31,50 27,49 28,99 39,70 33,05 31.16*

May 31,43 28,31 29,50 39,87 28,30 32.01*

June 29,09 27,21 30,22 38,17 28,55 33.93*

July 27,20 27,09 31,42 37,26 27,05 35.07*

August 26,31 27,28 32,02 35,16 26,60 35.85*

September 25,54 26,24 34,98 35,05 27,88 36.71*

October 26,13 29,50 35,51 34,93 29,20 45.77*

November 27,11 28,69 35,80 32,05 30,93

December 27,45 28,93 37,75 31,05 31.95*

* ICR Asian marker replaced by ICR Japan CIF

25

30

35

40

45

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

From December 2002 ICR Asian marker replaced by ICR Japan CIF

(Spot CIF Price, US$/t basis 6,000kcal/kg NAR)

STEAM COAL (Spot Cfr prices Japan) WHICH WERE VERY DEPRESSED IN EARLY 2003 HAVE SWALLOWED DURING THE YEAR TO ATTAIN RECORD LEVELS DUE TO TONNAGE SHORTAGE, INCREASING SEA FREIGHT, LOWER VALUE OD THE US$, AND INCREASING DEMAND. THIS TREND IS DUE TO CONTINUE DURING 2004 AND POSSIBLY 2005.

Asian Marker Price January 1998 – October 2003

source: Platts ICR Coal Statistics Monthly

13

Shipping: Handy max bulk carrier time-charter rates

source: Barry Rogliano Salles - Oct 20 2003

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!A&',EM:+N$+3E3#,+THE PERPEDICULAR EXPLOSION OF THE TIME CHARTER RATES FOR HANDY MAX BULK CARRIERS WHICH STARTED ITS TREND EARLY IN 2003 WAS INITIALLY MISUNDERSTOOD TO BE GENERATED BY THE WAR FEARS WITH IRAQ. LATER ON DURING THE YEAR IT HAS BECOME CLEAR OVER AND ABOVE ANY DOUBT THAT IT WAS PRODUCED BY THE EXPANDING DEMAND FROM CHINA AND BY THE RAW MATERIAL SHORTAGES FOR THE STEEL INDUSTRY WORLD WIDE. IN EARLY NOVEMBER T/C RATES HAVE INCREASED FURTHER TOWARD THE US$ 30,000 PER DAY: FIVE TIME MORE THAN END LAST YEAR.

14

Shipping: Coalfreight rates spot


ASTONISHING SPOT SEA FREIGHT RATES CONSTRAIN COAL AND COKE TRADES OVERLAPPING SHORTAGE OF COAL AND METCOKE DERIVING FROM CHINESE GROWTH CAUSED THE EXPLOSION OF SEA FREIGHTS

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15

Shipping: Iron ores capesize spot rates


ASTRONOMICAL SPOT SEA FREIGHT RATE CONSTRAIN IRON ORE TRADE OVERLAPPING CRITICAL PROBLEMS OF INBALANCE OF IRON ORE FACING IMPETUOS GROWTH OF DEMAND FROM CHINA.

TRAFFIC JAM IN MOST IRON ORE LOADING PORTS IS ONE OF THE CAUSES FOR THE SUDDEN SHORTAGE OF VESSELS AND FOR THE EXPLOSION OF THE SEA-FREIGHT RATES.

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`"!3,#& CG6777& (& !4&I!':& 4"!E& 9:'I;8!+,$#& 2"!3.& 1:',2'&<!':& *%& I3""$,(:/& 9$*,2& :!'#$#& !,(!&(=$&%=*.6&Va:'#*'(!"V6&'(&9$"(=&b7C0&)=$&<'.$&%*S$#&R$%%$:&':%!&I!,('*,%&'##*8(*!,':&.'"I$:%&!4& I!':& 4!"&!(=$"&\@<)&%='"$=!:#$"%0&)=$& \@<)& ($"E*,':& *%& '& ."*R'($:/&!+,$#& 4'I*:*(/& +*(=& I!':& I!E.',/&%='"$=!:#$"%& 1,2+$& <!::*$"*$%6& `,2:!&D.$"'(*!,%6&c%("'('&>!3(=&`4"*I'6&)!8(':& <!':& >!3(=& `4"*I'6& >'%!:& X*,*,26&B',2"'&<!':&',#&]/$%*S+$&<!':0&D,$&E*::*!,&(!,%&!4&(="!32=.3(&I'.'I*(/6&!,&'& ."!8"'('& E!,(=:/& 9'%*%6& +'%& E'#$&

9@&AB3&C&9DE=FG=H&AHIJ&>KKA$

(.:(9& ,!!'#& !,#& +':*"9'L& %,&:.,$'&"9&9,M')5'#&&`:I',6& (=$& <','#*',& ':3E*,*3E& 2"!3.6&%'*#& !,& K$#,$%#'/& *(%& dQ9,& ?eQ059,A&!44$"&4!"&*(%&J"$,I=&"*R':&U$I=*,$/&+!3:#&I:!%$&*,&U'"*%&',#&_$+&f!";&!,&_!R$E89$"&GQ6&':E!%(&4*R$&E!,(=%&'4($"&*(&E'#$&*(%& *,*(*':& 9*#0& 14& %3II$%%43:6& (=$& #$':&+!3:#&I"$'($&(=$&+!":#V%&9*22$%(&':3E*,8*3E&2"!3.&9/& "$R$,3$%6&I='::$,2*,2&g>&"*R':&`:I!'&4!"&*,#3%("/&:$'#$"%=*.0&1(&+'%&'.."!R$#& 9/&g>&',#&J"$,I=& "$23:'(!"%&:'%(& E!,(=6& ':9$*(& !,& (=$& I!,#*(*!,& *(&%$::%& "!::*,2& E*::%& *,& J"',I$6& a$"E',/&',#&(=$&g>0&g,#$"&(=$&I!E.:$H&%("3I(3"$&!4&(=$&!44$"6&#$%*2,$#&(!&4"3%("'($&'"9*("'2$3"%6&`:I',&+*::&#$I*#$&4*R$&#'/%&9$4!"$&(=$&I:!%$&!4&(=$&!44$"&+='(&R':3$&*(%&%='"$%&+*::&='R$&*,&(=$&9*#&',#&(=$&."!.!"(*!,&!4&I'%=&',#&%='"$%& *(& +*::& $HI=',2$& 4!"& $'I=&U$I=*8,$/&%='"$0&3()#)4(#5&!(6%*+,2./0.,001&&:,$:,& N#(5$& '(#.L7-'."M'#L&:(+'$"O'$&$.,%&&<!%I!& T!,28B!,2& +*::& %=!"(:/& %*2,& ',&!44*I*':& I!,("'I(& +*(=& >=',2='*&K'*2'!8W*'!& >=*./'"#& 4!"& (+!& !4& (=$& /'"#h%& 'I8I:'*E$#& N5P6777& #+(& I'.$%*S$%0& <!%I!&T!,2&B!,2&='%&%,'(I=$#&'&."*S$#&$'":/&#$:*R$"/& %:!(& (="!32=& %!E$& %:!(& "$%=3484:*,2&',#&*E."!R*,2&$44*I*$,I/&'(&<=*,'h%&,$+$%(&/'"#0&)=$& ."*S$#& $'":/& 9$"(=& %.'I$& 9"*,2%& '&4',('%(*I& $,#& G77C& #$:*R$"/& #'($6& ',#&E',/& !+,$"%& +$"$& W3$3*,2& 3.& 4!"& (=*%&!,$8!44&!..!"(3,*(/&(!&:'/&=',#%&!,&%=*.8.*,2h%&I3""$,(&2"$'($%(&$'",$"0&D,$&9"!8;$"& %322$%($#& (='(& (=$& /'"#& ='#& (!& 'I8I$.(&<!%I!&T!,2&B!,2h%&9*#&4!"&.!:*(*I':&"$'%!,%0& _!& ."*I$%& ='R$& 9$$,& E$,8(*!,$#& 93(& *(& *%& 9$:*$R$#& (='(& (=$&T!,28B!,2& !44%=!!(& !4& <=*,'h%& :'"2$%(& %=*.8.*,2&I!E.',/&*%&.'/*,2&*,&$HI$%%&!4&g>eQ7E6& 3.& E'";$#:/& !,& (=$& g>ebME&9$,I=E'";&4!"&<=*,$%$&93*:(&I'.$%*S$%0&7589$:*&7(*;+,-./0.,001&&%("/(9& 9(M"N(%",9& 5,,8$&56.8'#75,,)&+#,!"%&)'*.$*89'%$#& )'*+',& _'R*2'(*!,& ='%&',,!3,I$#&'&,$(&."!4*(&!4&)KL5G70GME&?eGN0NOEA&*,&(=$&4*"%(&,*,$&E!,(=%&!4&(=*%&/$'"6&3.&4"!E&)KLQQM07QE&*,&(=$&%'E$&.$"*!#& !4& G77G6& '%& 93:;$"& E'";$(%&9!!E$#0 & \$R$,3$%& i3E.$#& (!&)KLN0M9,&4"!E&)KLN0PM9,&:'%(&/$'"0&1,& >$.($E9$"6& )'*+',& _'R*2'(*!,&%.:'%=$#& !3(& !,& (="$$& .','E'H893:;$"&

*DF=&+;<=&5#$&&&&&&&&&&&);HP=Q&%H=RIS&&&&&&&&&&&9=TS&6UI;Q=&>&&&&&&&&&&&(R;VWSXS&

(QV;RQXY&:;U=SXZ=&XHDR&DH=&H;Q=S&;VFDSQ&SQ;GV=&

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7

G

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16

Coal Exports year 2003 M-tm

source: Coal Trade - Sept. 2003

57,6Other

20,1Poland

26,7Canada

42,5Russian Federation

38,3Colombia

35,0United States

73,8South Africa

87,5Indonesia

94,7China

213,2Australia

AustraliaChinaIndonesiaSouth AfricaUnited StatesColombiaRussian FederationCanadaPolandOther

Total Exports

Total689,4

17

Coal Exports year 2003 M-tm


118,9Other

37,5Colombia

71,3South Africa

102,4Australia

77,1China

77,6Indonesia

Steam Coal

21,3United States

21,5Other

110,7Australia

23,5Canada

17,6China

9,9Indonesia

Metallurgical Coal

Total484,9

Total204,5

18

Coal Imports year 2003 M-tm


22,5Spain

17,9Canada

26,1India


26,2Germany

30,6United Kingdom

55,6Taiwan

73,2Korea

171,4Japan

243,5Other

OtherJapanKoreaTaiwanUnited KingdomGermanyRussian FederationIndiaCanadaSpain

Total Imports

Total688,5

19

Coal Imports year 2003 M-tm



47,2Taiwan

21,8Germany

233,4Other

55,3Korea

103,3Japan

Steam Coal

7,2United Kingdom

15,3Brazil

16,2India

81,5Other 17,9

Korea

68,1Japan

Metallurgical Coal

Total482,2

Total206,3

20

U.S. Dollar decline eroding revenue of major Exporters

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source: The Mc Closkey Group Sources

The exchange storm originating from the decline of the U.S.A.$ has been eroding in 2003 the revenue of raw material exporters to the point that, around mid-year, numerous mines were considering the need to

reduce production in mining areas which had become uncompetitive or producers of negative income.Eventually the increase of demand, emanating from China, produced strong rise of spot prices and

rebalanced the situation to some extent.Australia, South Africa, Canada, Indonesia and Russia are the most damaged Countries. China is the only

Country unaffected by this devastating situation.

21

U.S.A. Dollars volatility and its influence on Australian steam coal


COAL TRADE September 2003

18

AUSTRALIAN AVERAGE EXPORT METALLURGICAL COAL PRICES

20

30

40

50

60

70

80

Jan

-94

Jul-

94

Jan

-95

Jul-

95

Jan

-96

Jul-

96

Jan

-97

Jul-

97

Jan

-98

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

$/t

on

ne

A$/t FOB US$/t FOB

Data sources: Coal Services, QDNRM, ABS, Factiva

AUSTRALIAN AVERAGE EXPORT STEAM COAL PRICES

20

30

40

50

60Ja

n-9

4

Jul-

94

Jan

-95

Jul-

95

Jan

-96

Jul-

96

Jan

-97

Jul-

97

Jan

-98

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

$/t

on

ne

A$/t FOB US$/t FOB

Data sources: Coal Services, QDNRM, ABS, FactivaTHE LOSS OF MORE THAN 20 A$ PER TON, FOR AUSTRALIAN MINES EXPORTING STEAM COALS, IS PUTTING IN JEOPARDY THE FUTURE VIABILITY OF SUCH MINES AND HALTING INVESTMENT CAPITAL FLOWS.

ONLY A ROBUST INCREASE OF REVENUE IN A$ CAN SECURE THE CONTINUITY OF PRODUCTION AND SUPPLY WHICH IS NEEDED BY THE GROWING NEED OF ELECTRICITY WORLD WIDE.

22

U.S.A. Dollars volatility and its influence on Australian coking coal



18

AUSTRALIAN AVERAGE EXPORT METALLURGICAL COAL PRICES

20

30

40

50

60

70

80

Jan

-94

Jul-

94

Jan

-95

Jul-

95

Jan

-96

Jul-

96

Jan

-97

Jul-

97

Jan

-98

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

$/t

on

ne

A$/t FOB US$/t FOB


AUSTRALIAN AVERAGE EXPORT STEAM COAL PRICES

20

30

40

50

60

Jan

-94

Jul-

94

Jan

-95

Jul-

95

Jan

-96

Jul-

96

Jan

-97

Jul-

97

Jan

-98

Jul-

98

Jan

-99

Jul-

99

Jan

-00

Jul-

00

Jan

-01

Jul-

01

Jan

-02

Jul-

02

Jan

-03

Jul-

03

$/t

on

ne

A$/t FOB US$/t FOB


THE DECLINE IN A$ OF MORE THAN 20 A$ PER TON OF COKING COAL EXPORTED IN LESS THAN TWO YEARS COULD PROMPT FURTHER MINES CLOSURES, OR LOWER PRODUCTION AND HALT INVESTMENTS.

NEGOTIATIONS FOR 2004 COKING COAL EXPORTS WILL BE A VERY TOUGH EXERCISE AND, MOST LIKELY, HIGH DOUBLE DIGIT FIGURE WILL BE NEEDED TO ALLEVIATE THE GROWING PROBLEMS OF SCARCE

AVAILABILITY. GROWING IMPORT DEMAND FROM CHINA AND HIGH LEVEL OF SEA FREIGHT RATES ARE ADDED COMPLICATIONS.

23

China’s: “Construction underway”

source: Merril Lynch: China trip - Sept. 2003

China Trip – 30 September 2003

Refer to important disclosures on pages 28 to 30. 3

Source:offshore-techonology

The above picture is of the Three Gorges damn under construction. (It is now

basically complete, the gates have been closed, and the reservoir is being filled!)

Upon completion and at full generation of electricity from this behemoth

hydroelectric plant, massive amounts of low cost electricity will become available

to help further economic growth in parts of China.

However, we believe that even after all 26 generators are operating there will be a

need for more electricity generation in China to meet the growing demand for

power. The first batch of generators will begin to generate power this year and

they all should be operating in 2009.

There appears to be much-debate as to the future status of electricity generating

capacity and its ability to meet the very strong growth rate in demand for

electricity. In most of our meetings it was suggested that there would be ample,

and possibly surplus power, within three to five years. This was suggested during

one meeting even as we experienced two brief power outages.

Upon completion and at full generation of electricity from this behemoth hydroelectric plant, massive amounts of low cost electricity will become available to help further economic growth in parts of China’s.

The three Gorgos Damm

24

China’s manufacturing labor costs are the lowest of all

source: Merril Lynch: China trip - Sept. 2003

* WORLD FASTEST GROWING ECONOMY WITH OVER 10% INCREASE IN 2003* STRONG GROWTH FORECASTED TO LAST AT LEAST UNTIL 2010* CHINA BECOMING THE MAIN MANUFACTURING POINT FOR THE GLOBAL MARKET ECONOMY* ULTRA LOW LABOR COSTS OF CHINA ARE IMPOSSIBLE TO BIT BY ANY COMPETITOR* THIS UNIQUE SITUATION IS CAUSING THE IMMIGRATION OF WORLD STEEL INTO CHINA,* EVENTUALLY SEEDING FOR INTERNATIONAL PROBLEMS INTO THE MEDIUM TERM FUTURE

Source: EIUChina

India

Taiwan

South Korea

U.K.

France

Japan

U.S.

South Africa

0.59

0.65

1.58

3.86

5.39

6.44

11.09

15.95

21.33

19.46

16.37

0.59

0.65

1.58

3.86

5.39

6.44

11.09

15.95

21.33

19.46

16.37

Manufacturing labor costsUS$ per hour, 2001

Brazil

Chile

Figure 14. Chinese labor cost comparison

What effect has China had on the global steel and steelmaking raw materials industries

and what are the implications for the future? Demand for steel has seen amazing growth

in the past 2 years and reached 210Mt in 2002. Comparison between steel production and

demand shows that demand is now running well ahead of production leading to a sharp rise in imports in 2002 and the recent price bubble in Asian steel prices.

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Figure 15. Steel demand vs production

The question as to how long China will continue to show this amazing growth is the key

issue facing the global steel and steelmaking raw materials supply industry today as it

impacts all steelmaking raw materials. Another 5 years of growth similar to the past 2 years will be good for all sectors of the industry, producers and suppliers alike, but if

growth slows, the future becomes significantly more cloudy.

4.2 Implications of China for Steelmaking Raw Materials

China has changed the global perception for steel and raw materials. The implications for a continuation of the past 2 years on seaborne markets for iron ore, metallurgical coal and

coke and manganese ore and alloy are profound. Lets briefly consider each in turn.

25

CHINA'S coal export/import trades: the unquantifiable “Chinese equation”



20

upturn in Nordic electricity prices, and prices have

continued to be relatively high during 2003. This

has in turn led to a sharp upturn in Danish

electricity generation. Energi E2, which consumed

2.1 Mt of coal in 2002, has reported a 31%

increase in its electricity generation for the first

half. Recent rains have resulted, however, in an

improvement in hydro storage levels so coal burn

may tail off from now on. Rain at this time of year

is particularly important. Most of the winter

precipitation is, of course, in the form of snow and

does not become available for hydroelectric

generation until the spring thaw

Energi E2 has also suffered from disruption of

supplies of orimulsion from strike torn Venezuela

this year, which has boosted oil and coal

consumption.

The shortfall in hydroelectric generation has

resulted in Energi E2 delaying the

decommissioning of the 143 MW #1 unit of the

Stigsnæs power plant until the end of 2003. The

mothballed Asnæs Power Station unit 4 (270 MW)

has also been re-commissioned.

Elsam similarly re-commissioned its

Nordjyllandsværket Unit 2 (305 MW) in February

2003. Elsam consumed around 4 Mt of coal in

2002 is on track to burn a little over 5 Mt in 2003.

Air conditioning demand is not a significant factor

in Danish electricity demand, but the European

heatwave has had some effect on Danish

electricity generation via increased electricity

exports, primarily to Germany. Southern Germany

was extremely hot over summer, and very low

river levels restricted cooling water intake into

German power stations, curtailing electricity

generation.

Denmark generally has substantial spare electricity

generation capacity, with most thermal plant

running at low load factors; so new power plants

will not be seriously considered for some years

yet. Even then, construction of new coal-fired

plant seems highly unlikely in a country so firmly

committed to reducing carbon dioxide emissions

and maintaining its ‘green’ credentials. Denmark is

nuclear free and unlikely to seriously contemplate

building a nuclear power plant. Wind and biomass

power, which already produce some 20% of

Danish electricity, will continue to grow under the

stimulus of generous government subsidies, but

most future demand increments are likely to be

satisfied by building new gas-fired power stations

or boosting electricity imports. Even if some of the

imports are sourced from Swedish nuclear plants

they will be safely out of the Danish back yard.

With numerous coal-fired power station units

coming to the end of their economic lives, Danish

CHINA'S COAL & COKE TRADE

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Coal Exports

Coke Exports

Coal Imports

The huge reserves of coal are exploited, for the time being, with little relationship with geographical and end use targets.Steam coal production, for the time being, appear enough to satisfy domestic needs and feed a robust export market.

Coking coal, instead, is not enough to face the rapid growth of the mushrooming Chinese steel industry, booth in terms of quality and quantity. Very questionable the availability of coking coal for export for the foreseable future.

Domestic prices for coal to Chinese Customers are higher than for export.

26

Export licenses suspended as of October 1/2003 until 2004?

source: Cru International - Oct. 2003

Average export prices for 12-12.5% ash coke

DURING THE PAST YEAR THE QUALITY OF CHINESE COKE FOR EXPORTS HAS DECLINED IN A CRESCENDO THAT IN THE FOURTH QUARTER HAS REACHED ITS POOREST LEVEL. TONNAGE AVAILABLE FOR EXPORT HAS DECLINED AND AS OF OCTOBER 1/2003 EXPORT LICENSES HAVE BEEN HALTED UNTIL 2004? (early November, news from China, assured that there will be enough coke for export in 2005 ...and what about 2004?).

PRICES HAVE TRIPLED FROM THE US$ 60 TM FOB level of early 2002 to the US$ 180+ TM FOB CHINESE LOAD PORT IN NOVEMBER 2003.

Chinese coke: quality and export tonnage declining and prices skyrocketting

27

Coke dilemma: who, when and where will produce the needed tonnage?

- STEEL INDUSTRY WORLDWIDE IMPACTED BY HUGE AND GROWING COKE SHORTAGE- FOR HOW MANY YEARS THERE WILL BE A SHORTAGE OF COKE?

source: BHPB - Dr. Neil J. Bristow - Drivers impacting global coke markets - Oct. 2003

World likely to see increased demand for coke in short to medium term

North America

South America

West Europe

China

India

Japan

PERSPECTIVE 2004 ?

Thank you for your kind attention

Documents

International Coal Trade and Price Developments in 2003 · 1971 2000 2010 2020 2030 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 OECD Developing countries Energy demand