Coking
Coal: Supply, Resource
Development and Imports
JUST IN…..
Such Headlines may..
• Send shivers across the spine of steel
makers
• Prompt the coking coal pricing curve head
northwards
• Rush Indian steel industry to the board room
to understand the coking coal inventory and
to work out a contingency
• Such is the volatility and uncertainty of the
coking coal market
It may be rightly said that…
When Queensland catches cold,
Indian steel industry starts
sneezing
Steady and secured supply of coking coal
has become one of the prime challenges
of the Indian Steel Industry
Drivers of Indian Economy
• High savings rates
• Availability of low cost, skilled and semi skilled
labour
• Growing more affluent Middle Class
• Technology – supporting the Service sector
• Favourable demographics
• Trade opening and Free markets
• Manufacturing
• Growth in parts manufacturing
• Emerging centre for small car development and manufacturing
• Plans for intelligent engineering products
• Major opportunities for food processing and manufacturing
India’s short term outlook is weaker growth continued till 2013,
affected by the global crises.
Domestic consumption is the key and lower interest rates and
confidence will trigger future growth. 9% remains a challenge.
12
9.5 9.6
10 9.3
GDP Growth Rate in %
8.5 8.5
8
8 7.5
6.8 6.9 7
5.8
6
4.4
3.8
4
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 f
2011 – A not so good year for India
Slow economic growth …. Low steel demand
YoY changes in apparent steel consumption (2011 V/S 2010)
...Fortunately 2012 has started in a much positive mood
15.00%
10.80%
10.00% 8.70%
7.80%
5.00%
1.90%
0.00%
-5.00%
-5.20% -5.20%
-7.90%
-10.00%
Europe USA China Japan India Brazil Middle
East /
Africa
Source: Worldsteel, Macquarie Research
However for India – Fundamentals are strong
India will continue strong urbanisation
India will urbanise a further 215 million people by 2025. Although
China will exceed, this total the effect will see India adopting
some of the key Chinese concepts which will boost steel demand.
Source : McKinsey, BHPBilliton presentation
India will grow at a faster rate than China
In the next 10 years Chinese economic growth will moderate.
India is forecast to pick up growth and overtake China in the next
couple of years.
14,000 14
Forecasts
12,000 12
GDP growth rate %
GDP US$trillions
10,000 10
8,000 8
6,000 6
4,000 4
2,000 2
0 0
2005 2008 2011 2014 2017 2020
China GDP % India GDP % China GDP (US$b) India GDP (US$b)
Source : IMF, Internal estimates
Steel Development Pattern
India’s long
term steel
development
pattern is
similar to most
countries,
following the
same pattern
of more than a
century old
China has already reached its peak in growth rate, while India
is on the rise…..
I NDIAN F INISHED S TEEL
C ONSUMPTION
(Mn Tonnes) (000' Tonnes)
75 8,000
70
65 6,000
60
55 4,000
50
45 2,000
40
0
35
30 ‐2,000
25
20 ‐4,000
15
10 ‐6,000
5
0 ‐8,000
FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11
Demand Production Surplus/Deficit (RHS)
Source: JPC, CARE Res earch
Indian steel outlook
Forecasts for steel vary widely depending on the view of growth. India’s
demand for steel will be driven by large iron ore reserves, but with very
limited domestic met coal major growth in imported coal is essential.
300 Indian steel outlook to 2025
250 Crude Steel
million tonnes
200
150
100
50
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: Internal estimates
Coking Coal Requirement to meet
India’s projected Steel growth
MT
Increase in Met Coal
2020 Steel increase
Demand by 2020
10%pa 100 61
12%pa 135 84
15%pa 202 132
20%pa 361 226
• 10%pa will see a doubling of import demand
• 20%pa increase is equal to current seaborne market for all Met Coal
• Major increase in all forms of met coal
PCI = 2.1 x today’s market
HCC = more in demand at higher rates due to rising productivity ~
doubling market
But From Where would all this
Coking Coal Come From??
Type of Coal Total Resource % of the total
in Billion Tonne resource
(A) Coking:
‐ Prime Coking 5.3 1.8%
‐ Medium 26.4 9.2%
Coking
‐ Semi Coking 1.7 0.6%
Sub Total Coking 33.5 11.7%
(B) Non‐ Coking 250.9 87.8%
* Includes 749.92 M.T. of Inferred resources established through mapping in North‐Eastern region.
( C ) Tertiary Coal 1.5 0.5%
Grand Total 285.9
Source: Ministry of Coal, Govt of India
India’s Coking Coal
Production Scenario
Coking
13%
Semi- Prime
Non-
Coking, Coking,
Coking
1% 2%
87%
Medium
Coking,
10%
Source: Ministry of Coal, Govt of India
Although India has large coal reserves it is very short of
prime HCC
Domestic Coking coal is:‐
o High ash
o Tends to have poor coke strength
o Requires imported high quality HCC
o Not really suitable for PCI
• Production of domestic coking coal has declined since 2004
• Coke production has risen by almost 30% since 2004 and is
poised to grow further
The future of India’s coking coal is Imports
Increasing Coking Coal Demand (in MT)
70 65 45
Import of coking coal (million tonnes) (RHS)
58.7
60
52.8 35
50 45.6
41
40 37.6 25
30 15
23 22.7 22.4 22.2 21.9 21.7
20
5
10
0 ‐5
2008 2009 2010 2011 2012F 2013F
Demand of coking coal Production Import
Source: Coal Industry Annual Review, CRISIL Research, E&Y
Forecast of Indian Coking Coal
Import (in MT)
Source: various reports and internal estimates
0
50
100
150
200
250
300
350
Jan/08
Apr/08
Jul/08
Oct/08
Jan/09
Apr/09
Jul/09
Oct/09
Jan/10
Apr/10
Jul/10
Oct/10
Jan/11
Apr/11
Hard Coking Coal in US$
Jul/11
Oct/11
Quarterly Contract Price of
Jan/12
Apr/12
Factors influencing
global coking coal scenario
y Blast Furnace growth drives met coal and coke demand
• Globally Steel production through BF increasing by over 70%
• Over 90% of Chinese Steel Production is through BF
• Around 65% of world production is through BF
• Capacity Addition in Indian Steel is expected to be more through BF
y China remains major market for seaborne met coal trade
y Infrastructure capacity growth limited, US only major “spare”
capacity in next 2 years for coking coal supply
y China is not a major coke exporter in the future – maintaining
met coke prices on the higher strata – coking coal short supply
also pushes met coke prices to keep the BFs running
y PCI rates pushed hard
Near term outlook of coking coal
supply / demand
y Market moving into short term destocking, delayed buying – to
pick up in mid 2012....However things may drastically change as
the situation unfolds in Bowen Basin force majeure
y Chinese demand remains the key driver – the future would
depend on will China sustain or increase imports??
y To balance demand China imports have to be <25Mtpa. Any
upsurge would destabilise the precariously poised coking coal
supply/demand scenario
y Coke shortages are likely if China continues to not exporting as in
last few years – opportunity for merchant coke??
y Is there a potential for insufficient met coal / coke for forecast pig
iron production??
Global Trend in Coking Coal
• With increased demand, coking coal supply will find it difficult to
meet demand
• Coking coal price too would remain extremely high for some years
• China likely to dominate and its offshore mine and corporate
ownership is likely to accelerate. India to follow suit
• Australia the major potential source has its own limitations of
logistics & capacity
• Real anxiety of availability when seaborne demand breaches
>>400Mt tonnes/year.
Hard Coking Coal Demand Growth : 2005 – 2020 CAGR (forecast)
Region CAGR (2005 - 2020)
Brazil, China, India 8%
Asia (excluding China & 2%
India)
Europe 0.2%
World Total approx. 3%
Source: AM E; RTCA Analysis
China’s Emergence as a major market
China has become a major importer of coking coal in less than 10
years with major impact on coking coal trade flows from 2009 which is
going to stay for the entire decade
Source : CRU Analysis
Global Coking Coal Demand ‐ 2020
Million Tonnes 2008 2009 2010 2011 2012 2015 2020
A: Seaborne Hard
138 139 161 182 191 213 243
Coking
B: Seaborne Semi‐
44 35 48 55 58 65 74
soft/weak
C: Seaborne PCI 36 32 40 47 50 57 69
Sub‐Total SS & PCI
80 67 88 102 108 122 143
(B+C)
All Met Combined 218 206 249 284 299 335 386
Sou rce: Merlin Trade and Consultancy Ltd
Global Coking Coal
Supply Front
• Australia remains the major supplier of Coking Coal
• But production not likely to increase to match
demand – infrastructure remains the main
bottleneck in further expansion
• Floods like that occurred last year in Queensland in
Australia which supplies nearly 60% of coking coal
globally would further strain the scarce market
• New locations emerging – Indonesia, Siberian
Russia, Mozambique, Mongolia.
• However quality concerns and infrastructure
bottlenecks remain
The Rise of Mongolia –
Coking coal import by China
2010
2011
Others Others
21% 22%
Mongolia
33% Mongolia
Canada 45%
Canada
8%
10%
Australia Australia
38% 23%
Source: AME Mineral Economics, China Customs
• Mongolia has overtaken Australia as the largest supplier of coking
coal to China in 2011
• The coal imported from Mongolia is ROM coal
• Large blast furnaces in South East China are more attuned to
Australian coal as well as logistically convenient & may switch to
Mongolia when Australia is unable to supply as in 2011 due to floods
Metallurgical coal exports by country‐
2011 V/S 2030
Developing basins in Indonesia, Mozambique and Russia
would gain some foothold, though Australia and USA
continue to remain the dominant force
2011 2030
13% 19%
12%
23%
57%
59%
2%
5%
1%
4%
3%
1%
1%
0%
Australia Colombia Indonesia Russia
Australia Colombia Indonesia Russia South Af rica USA Other
South Af rica USA Other
Source: W ood Mackenzie Coal Market Service Source: Wood Mackenzie Coal Market Servi ce
Global metallurgical coal supplies are limited
Significant investment in mines and
infrastructure will be required in traditional
and emerging basins to ensure that adequate
supplies will be available after 2013
After 2020, supply will struggle to keep up
with demand – prices will increase in real
terms
Source: ISMW
For India some new producers are closer –
but other bottlenecks make them unviable
Australia keeps an advantage over other current / developing basins. Indonesia & Mozambique
though have geographic proximity advantages, but quality, infrastructure and steady availability
are much bigger questions
Russia Kuzbass
East Siberia Elga
Tavan Tolgoi,
Western Canada Mongolia
6500nm 6000nm 5500nm
Appalachia
Shanxi, China
Indonesia
Central
2500nm Kalim antan
Mozam bique
5000nm
Tete/Moatize 4000nm
Major seaborne supply basin 9000nm Bowen Basin
Major prospective supply basin
Major domestic supply basin
13000nm
Securing Coking Coal Supply
y Further development of domestic coking coal reserves can
ease the situation somewhat
y Captive coal mining introduced in 1993
y But there are significant hurdles in domestic captive coal
block development
Time consuming processes for environmental & forest clearances
Problem of land acquisition – Resettlement and Rehabilitation issues
Joint allocation of mines
Inadequate experience in mine development of the private players
• Slow progress in domestic market mine development has
compelled steel and merchant coke producers to look
overseas for coal assets
GUJARAT NRE COKE LIMITED (GNCL)
GNCL ‐ A SNAPSHOT
Largest independent producer of Metallurgical Coke in India
Profit earning and dividend paying with strong financials and credit
rating of AA‐ for long term borrowing and PR1+ for short term
borrowing.
Met Coke capacity 1.434 MT, being increased to 4 MT by 2015.
The 1st Indian Company to have exported Met Coke from India and
has a continuous export order book
Strong focus on the Environment with ISO 14001:2004 & OHSAS
18001:1999 certification
Rated one of the top 10 company by 10‐years profit performance
issued by Business Today on India’s Most Valuable Companies (Nov
2009 edition)
35
GNCL OPERATIONS
Waste Heat Recovery LOW ASH
Power Plants METALLURGICAL COKE
HARD COKING COAL Khambhalia* 15 MW 1.434 MMTPA
(NSW, AUSTRALIA) Bhachau* 15 MW
RESERVES 125 MMT Dharwad* 30 MW
RESOURCES 651 MMT Total 60 MW
KHAMBALIA (Jamnagar)
0.358 MILLION MTPA
Wind Power 87.5 MW
BHACHAU (Kandla)
Gujarat NRE Coking Coal Limited STEEL UNIT 0.504 MILLION MTPA
(ASX: GNM) TMT BARS : 0.311 MMTPA
NRE NO. 1 – 314 million tonnes DHARWAD (Hubli)
NRE Wongawilli –337 million tonnes Coal Washeries 0.572 MILLION MTPA
Khambalia 0.75 MTPA
Bhachau 0.75 MTPA
Dharwad 0.90 MTPA
In Australia In India
* Under implementation
Coke Exports by Gujarat NRE
78% Brazil
France
• Brazil Japan
Argentina
• France South Africa
• Japan
• Argentina 9%
• SE Asian Countries
6%
3% 4%
In addition to meeting the increasing domestic coke demand, Gujarat NRE
Coke has been tapping the opportunity in met coke export market – to fill in
the void created by global short supply
GUJARAT NRE COKING COAL LTD OVERVIEW
ASX listed hard coking coal producer
100% owner of two underground mines Peabody
Metropolitan
in NSW, Australia Xstrata
Westcliff Northcliff
Tahmoor Appin
» NRE No. 1 & NRE Wongawilli W. Tahmoor BHP Illawarra
Coal
Southern
NRE No. 1
JORC reserves of 125 Mt and resources Coalfield Dendrobium
W o llo ngo ng
of over 650 Mt Berrima NRE WONGAWILLI
Por t Kembla
Port Kembla coal
y The majority of unwashed coal is sold Sutton
Forest loader 18 Mtpa
proposal
under contract to the Company’s major Kiama
shareholder (Gujarat NRE Coke) at
market price on arms length term
Targeting to increase coal production to
>5 Mtpa by 2016
Poised to become one of the largest
Hard Coking Coal producers from Australia in 4-5 years
GNCCL planned
output by 2016
We are in Australia
The only Indian company to own and operate coking coal
mines in Australia
The only ASX-listed pure-play metallurgical coal
developer/producer
Positioned for significant production growth to >5 Mtpa by
2016
Attractive valuation metrics relative to other ASX coal
explorers, developers and producers
THANK YOU
Arun Kumar Jagatramka
Chairman and Managing Director
41
Gujarat NRE Coke Limited
