2015 Seaborne thermal and metallurgical coal outlook. Market Reporting Consulting Events. illuminating the markets

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1 2015 Seaborne thermal and metallurgical coal outlook London, Houston, Washington, New York, Portland, Calgary, Santiago, Bogota, Rio de Janeiro, Singapore, Beijing, Tokyo, Sydney, Dubai, Moscow, Astana, Kiev, Porto and Johannesburg Market Reporting Consulting Events

2 Argus seaborne thermal & seaborne met coal outlooks Two new products from Argus Consulting Monthly forecasts of demand, supply and prices of key thermal and metallurgical coal benchmarks Monthly market analysis Analyst access

3 2014 Review prices slide and supply ample

4 2014 Thermal coal Prices slide to 5 year lows Chinese coal consumption slows, major shift by policy makers to support domestic coal producers Australian and Russian seaborne supply soars, US cuts supply sharply, Indonesian output growth stalls European coal burn falls Indian demand steps up to absorb some of the drop in interest from elsewhere

5 2014 Thermal coal major importer & exporters US 28, Colombia 76, +2 Sth & Cen America 76, Europe 156, flat South Africa 74, Russia 120, +11 India 150, +20 China 190, -19 ASEAN 61, Indonesia 410, Japan, Korea Taiwan 286, Australia 188, Major Importer Total/YoY Change (mn t) Major Exporter Total, YoY Change (mn t)

6 2014 Metallurgical coal Prices slide to 7 year lows, but stabilize in 2H14 Australian exports grow as miners push for productivity improvements, which more than offset supply cuts elsewhere Chinese construction slowdown hits steel consumption, production supported by huge rise in exports Consumption ex-china was solid, although some loss of momentum into year end

7 2014 Metallurgical coal map To Asia ex-china flat To China -4 Russia 14, -1 Canada Europe 31, -3 Mongolia 155, +3 11, flat US +5 China 52, -4 65, -9 Brazil 14, flat Aus To Atlantic +2 Mozambique 3.6, +<1 India 46, US to India Australia 186, +16 Japan, Korea Taiwan 286, US to Asia -7 Major Importer Total/YoY Change (mn t) Major Exporter Total, YoY Change (mn t)

8 2015 China destocking to bring higher prices, with policy muddying the waters

9 Short term focus is on oil and FX Seaborne coal prices collapse in Jan as correlation rises across markets Producer currencies mostly depreciate A$, Saf Rand down 10pc Russian Rouble down 50pc Chinese Yuan, Indian Rupee, Indonesian Rupiah relatively steady Rolling 20-day correlations cif ARA and Brent Crude cif ARA and Euro Jan 14 Apr 14 Jul 14 Oct 14 Jan Source: Argus Key producer currencies vs US$ Index Jan 14 = Australian Dollar 80 Russian Rouble Colombian Peso South African Rand 60 Indonesian Rupiah Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan Source: FRED, Argus

10 Have coal market fundamentals shifted that much? Has the current market balance changed in the last 2 months? Winter in Europe has been mild so far, Narrowing in implied freight made sense, But hard to justify large move in prices Do the moves in FX and oil radically change the future outlook? Both these factors reduce costs for some producers, although marginal supply still under pressure Does it change the production outlook for 2015? Thermal coal price markers $/t cif ARA fob Richards Bay fob Newcastle 5,500 cfr South China 5,500 fob Indonesia 5,500 fob Indonesia 4, Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Source: Argus

11 China the tide that will move all boats Domestic balance is improving as supply is cut Demand currently contracting but should improve in 2H15 Policy moves should stabilise macro environment Hydro generation surge unlikely be repeated Demand growth doesn t have to be high if supply is under pressure Prices have to rise to encourage supply growth China coastal Inventory vs. coal price Inventory days - inverted (LHS) QHD FOB (5500kcal) (RHS) forecasts China power generation growth days, Yn/t Source: China Customs, CCTD, Argus Media 60% Total Thermal Hydro 45% 30% 15% 0% -15% -30% YoY% Chg 60% 45% 30% 15% 0% -15% -30% Source: NBS, CCTD, Argus

12 Chinese policy muddies the waters Policy makers move to protect domestic producers Increase taxes on bituminous and sub-bit coal Stricter monitoring of quality Restrictions on utilities in Q4 Arbitrage opportunities open, but utilities restricted on buying How persistent will this policy driven wedge be? Chinese coal prices cfr South China fob QHD fob Indonesia 5,800 GAR 55 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 $/t China thermal coal imports by source mn t Lignite Other Steam US, Col, Saf Indo - Steam Australia YTD mn t chg Jan 13 May 13 Sep 13 Jan 14 May 14 Sep Source: Argus Source: China Customs, Argus

13 India the lynchpin of rising demand ex-china Growth from importbased plants moderating Macroeconomic momentum improving Domestic-coal based plants driving increase Industrial momentum also improving markedly Indian thermal coal imports Year ending March Import-based plants Cement Power and other mn t Source: Ministry of Coal, Argus estimates

14 India the lynchpin of rising demand ex-china ASEAN, Korea, Turkey rising Europe forecast to fall slightly, but destocking an additional risk Forecast Change in Demand: 2015 mn t UK Carbon tax risk Weather uncertainty 10 5 India Turk/E.Eur ASEAN Korea Cen/Sth Am MENA Japan US Other Europe China Source: Argus

15 Seaborne supply growth remains slow Slowdown in growth from Australia, Russia Muted growth from Indonesia Larger producers will continue to expand to cut costs Biggest supply risk from small producers benefitting from low oil prices Colombian supply to further displace US exports China exports unlikely given higher-priced domestic markets Forecast Change in Supply: 2015 Col Aust Indonesia Mozambique South Africa Russia China Poland USA mn t Source: Argus

16 Price outlook Prices forecasts bullish from current spot, but around 2H13 levels Key factors to watch Crude/FX the only thing that matters, until it doesn t? Path of China destocking over the next few months Macro momentum post Chinese new year Thermal coal price markers cif ARA fob Richards Bay cfr South China 5,500 1H15 Ave 55 Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 2H15 Ave $/t Source: Argus

17 2015 metallurgical coal gets a boost from struggling Chinese supply

18 Looking for the spark to shake off the stability FX benefiting some, but not marginal suppliers Productivity gains coming to a limit, closures making a bigger impact China s call on the seaborne market is falling Can domestic Chinese supply grow at current prices? Metallurgical coal prices India Europe Korea Japan fob Aust low-vol, $/t fob Aust low-vol, A$/t fob USEC low-vol, $/t fob USEC low-vol, /t Forecast Change in Demand: 2015 Brazil Taiwan Sth/Cen Am Index: 1 Jan = Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Other China Source: Argus mn t Source: Argus

19 Seaborne supply starts shrinking Gains to Australian output slowing Supply cuts in North America deepening Inventory runs out at idled operations Additional supply muted Moatize ramp up a bigger issue for 2016 Change in Aus met coal exports 2014 & Existing mine Aust New mines & expansions Moz Production Loss Mine Closure Forecast change in seaborne supply: 2015 Other 2014 Change China New mines and expansion Existing Mines gains Source: Company reports, Argus mn t Russia Closure & losses Canada 2015 Change USA mn t Source: Argus

20 Ex-China demand to grow at a modest pace Momentum has slowed from 1H14, but still positive India a bright spot, although significant stocking in 2014 Big fall in iron ore price vs. steel scrap supports BOFs FX moves positive for those competing against Chinese steel exports OECD Leading indicators 103 Japan Brazil India Korea 102 Euro area Index Source: OECD, Argus Key consumer currencies vs US$ Index Jan 14 = Chinese Yuan Yen Euro Korean Won Indian Rupee Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Source: FRED, Argus

21 China supply growth needed even if demand slow Assuming ~1pc increase in Chinese production Construction outlook poor, although policy is turning Modest increase in Mongolian supply, seaborne availability dropping Can Chinese supply rise at current prices? Chinese interest rates and housing construction 60% 40% 20% 0% -20% -40% Source: PBC, NBS, Argus Estimated chinese supply ? mma YoY, % Real Estate under construction (LHS) 3 Month Shibor (RHS) 1 yr benchmark rate 10.0 mn t Mongolian Imports Seaborne imports Domestic supply China supply needs to rise 2pc to balance market with 1pc steel Source: Argus

22 Chinese exports of steel and met coke to stabilize Steel exports to flatten Reduction in VAT rebate on boron-added steel (30% of exports) Chinese met coke exports to be tamed by a fall in margins Chinese net steel exports crude basis Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec China met coal & est. coal in coke +28mn t YTD mn t ann Source: China customs, Argus mn t ann +5.2mn t Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: China customs, Argus

23 Price forecasts Prices returning to levels seen at end-2013 Key Factors to watch Metallurgical coal price markers Spot fob Aus low-vol HCC Contract fob Aus low-vol HCC Contract fob Aus semi-soft coking Contract fob Aus PCI Spot fob USEC low-vol HCC North American exports: will cuts become more 160 2H15 Ave 140 apparent? 1H15 Ave Chinese policy vs. growth: commitment to stabilizing activity vs. financial risks Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Jul 15 $/t Source: Argus

24 Implications for the US

25 Steam coal exports challenged even if prices rise Increasing competition from Colombian and South African supply Term European demand is shaky, weather an increasing swing factor Sulfur discounts widen if prices rise? Pushing tons into oversupply domestic market Selected Europe coal consumption Finland France Spain UK Germany est Jan 13 Jul 13 Jan 14 Jul 14 US and Colombian coal prices *adjusted to 6,000kcal energy content mn t YTD mn t chg Source: DECC, Eurostat, Argus fob USGC disount to Puerto Bolivar (RHS) fob USGC 3pc Sulfur fob USEC CAPP fob Puerto Bolivar 50 Jul 2011 Apr 2012 Jan 2013 Oct 2013 Jul 2014 $/t, % 40% 35% 30% 25% 20% 15% 10%

26 Coking coal Gains for some at the expense of others Supply rationalizations in 2014 defining winners and losers in 2015 FX an increasing disadvantage, although US marginal supply should set the price Diversity of supply? With Australia increasing market share, discounts for US coals may narrow to ensure availability Discounts to low-vol coking coal % 20% 15% 10% US High Vol A US High Vol B Aus Mid-Vol 20% 15% 10% 5% 5% Discount 0% Premium 0% -5% -5% Jan 13 Jul 13 Jan 14 Jul 14 Jan 15 Share of seaborne metallurgical coal market 100% 75% 50% 25% 0% 11% 8% 9% 12% 11% 10% 12% 25% 16% 65% 56% 65% F Other Canada USA Australia Source: Argus

27 Any questions?

28 Hayden Atkins Principal, Coal Phone: Office: 500 Fifth Avenue, Suite 2410, NY 10110, USA Copyright notice Copyright 2014 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence from Argus. Without limiting the foregoing, by reading this presentation you agree that you will not copy or reproduce any part of its contents (including, but not limited to, single prices or any other individual items of data) in any form or for any purpose whatsoever without the prior written consent of Argus. Trademark notice ARGUS, ARGUS MEDIA, the ARGUS logo, DEWITT, FMB, FUNDALYTICS, METAL-PAGES, JIM JORDAN & ASSOCIATES, JJ&A, ARGUS publication titles and ARGUS index names are trademarks of Argus Media Limited. Disclaimer All data and other information presented (the Data ) are provided on an as is basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any particular purpose. Argus shall not be liable for any loss or damage arising from any party s reliance on the Data and disclaims any and all liability related to or arising out of use of the Data to the full extent permissible by law.