COKE MARKET REPORT

Analysis of the Global Metallurgical Coke & Coal Markets

Issue 01/13 January 21, 2013 Also Including: Pig Iron Output Data Trade Data on Coke & Metallurgical Coal

The Coke Market in January 2013

The economic mood has turned more positive at the start of the year, this being reflected in higher asset prices including commodities. The oil and the steam coal markets have been higher in January. Spot coking coal has edged upwards, and this may push up coke prices too in the next few weeks. Following the first-quarter settlement for hard coking coal at $165/tonne fob, spot prices have risen from $158-162/tonne fob in December to $160165/tonne fob this month, the highest level since August. Upside potential looks to be limited, however. Indian import prices for blast furnace coke are unchanged from last month at $290-300/tonne cfr with offers coming mainly from Ukraine. Coke from China is being offered at $320-340/tonne cfr, too high for the current market. The Indian prices declined more or less continuously last year, even though demand for imports appeared to pick up in the second half. Last years imports of coke by India are likely to be about 5% down on the 2011 volume of 2.1m tonnes. Chinas total coke exports have been confirmed as 1.02m tonnes in 2012, less than one-third of the previous years volume. The removal of the 40% export tax at uthe start of this year has meant that prices for blast furnace coke have declined from $450-460/tonne fob in December to $300-310/tonne fob. However, this price remains too high to make transactions workable currently. Likewise, nut coke is offered at $270-275/tonne fob, about $80/tonne lower than last month but still too high for the international market. With no export tax, foundry coke is likely to be about $360-370/tonne fob, a rate that should be interesting for customers in Europe and elsewhere. Currently, however, there appears to be little interest in exporting Chinese coke of any grade. The Chinese domestic coke market is tight, and prices have risen by around $60/tonne since the September low-point. Blast furnace coke prices average the equivalent of almost $280/tonne this month, not significantly different to price indications in Europe or India. The European blast furnace coke market looks unchanged at $260-280/tonne cfr. Foundry coke prices appear to be 5-10/tonne down this quarter at 380410/tonne delivered ($500-539/tonne).

Coking coal keeps rising, coke largely unchanged as yet.

Export indications from China fall dramatically but still there is lack of immediate interest.

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COKE MARKET REPORT

World blast furnace iron production has been declining almost continuously since April 2012. In November the adjusted total was 1.06bn tonnes on an annualized basis, 1% down on the previous month. There is unlikely to have been any upturn in December, though this quarter may see some turnaround. Europe In 2012, NWR produced 680,000 tonnes of coke at its Ostrava plant in the Czech Republic, but sales were only 555,000 tonnes. Most of its production is for the foundry market. Despite the poor market situation, NWR expects coke production to be 800,000 tonnes in 2013, up on last year. Asia Chinese coke production last year totaled 443.2m tonnes, according to the coke association, 4% up on 2011. The rate of increase slowed in 2012; in the ten-year period 2003-12 the average annual increase was 9% per year. Chinese coke capacity is said to be more than 600m tpy, so there is considerable over-supply potentially. According to our current estimate, China accounted for 67-68% of world coke production last year. Coke production in Taiwan was 4.82m tonnes in 2012, 1% down on the previous year. Of this quantity, China Steel accounted for 3.86m tonnes and Dragon Steel 0.96m tonnes; the latter operation (affiliated to China Steel) only starting to produce in 2010. Dragon Steels coke production was 13% lower than in 2011. Total coke capacity in Taiwan is 6.8m tpy indicating considerable over-capacity. However, Dragon Steel plans to start a second blast furnace in March, which will require more coke. Hoa Phat Energy of Vietnam produced 300,000 tonnes of coke in 2012, slightly down on the quantity of the previous year. It exported around 100,000 tonnes, three times the quantity in 2011. Existing capacity of 0.35m tpy was doubled in 2011, but this second stage has yet to be activated. Hoa Phat began producing in 2009, primarily taking advantage of the high tax on Chinese coke exports at the time. Slower growth in Chinese coke production in 2012, considerable overcapacity. Iron production declining for past nine months.

Chinese Coke Apparent Demand & Exports

120 115 110 Million tonnes 105 100 95 111.6 90 85 80 0.6 0.3 0.2 0.3 0.3 0.2 0.76 0.74 0.72 0.70 Ratio 1.00 0.95 0.90 0.85 0.80
Exports Demand (= Output - Exports) Ratio: Coke Demand / Iron Output

1.05

Coke Price Indexed Against Other Markets

115.5 105.3 107.3 108.1

112.8 0.68
0.66 0.64 0.62

Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13

Coke Steel Thermal Coal Coking Coal Oil

January 2013

COKE MARKET REPORT

Asia (contd) At the end of last year, the board of Pakistan Steel Mills ordered a technical evaluation of the feasibility on keeping one of its two batteries on hot idle indefinitely. Since being rebuilt and heated up at the end of 2010 by Ukrainian contractor Concord Industrial Project, battery #1 has not produced coke due to coal shortages and low demand. With battery #2 rebuilt and restarted in 2008 there is a total potential capacity of around 1.0m tpy of coke at Pakistan Steel, but actual production has only been 0.20.3m tpy in the past three years. To achieve profitability long term, steelmaking will need to reach 80% of capacity, requiring both batteries to produce; yet until this is achieved, battery #1 needs to be kept on hot idle using contractors at a cost of $100,000 per month. North America SunCoke Energy reported preliminary production for last year at its five US plants of 4.34m tons (3.95m tonnes), 15% up on 2011. Full-year production of its newest facility at Middletown, Ohio was responsible for the increase. Its US capacity totals 4.0m tpy so production effectively ran at maximum. Bankrupt RG Steel has asked a US court to liquidate its joint-venture agreement with Severstal to manage the coke plant, Mountain State Carbon in West Virginia. RG Steel claims that it has been blocked from participating in the plants management since it went bankrupt in June 2012. It has asked the court to order a sale of the West Virginia coke plant so that it can maximize recovery for its creditors. Three of the four batteries were put on hot idle in June 2012, cutting operational capacity to 0.7m tpy. Two of its major long-term customers the steel plants at Sparrows Point and Steubenville ceased operating last year. Canadian coke production was 2.90m tonnes in 2012, slightly down on the previous year. Assuming the four steel plants in Canada remain in operation, coke production is likely to continue at this level for the next few years. Other markets Coke production at South Africas three plants all ArcelorMittal totaled 2.23m tonnes in 2012, 8% down on the previous year. Of this quantity, 0.44m tonnes went to the local merchant market (mainly for ferrochrome production), 32% down on 2011. Mechant coke was produced at the Pretoria and Newcastle plants, none at Vanderbijlpark as in previous years. The quantity produced for steelmaking (1.79m tonnes) was similar to that in the previous year. Steelmaker Siderar in Argentina produced 1.01m tonnes of coke last year, 9% down on 2011. In Chile, Cia Siderurgica Huachipato produced 0.47m tonnes, just 1% lower than in 2011. Both steelmakers also imported coke in 2012 to meet 5-10% of their demand, Colombia being the main supplier. Coke imports by Brazil totaled 1.59m tonnes in 2012, 27% down on the previous year. Colombia (0.49m tonnes) overtook China (0.39m tonnes) to become the leading source to the Brazilian market; there was also supply from India, Poland and Ukraine. Keeping one of two batteries on hot idle has cost and technical drawbacks for Pakistan Steel.

US coke plant has uncertain future.

January 2013

METALLURGICAL COKE & COAL MARKET PRICES

World Coke & Coking Coal Prices
Nov 2012 US$/tonne fob China: Blast Furnace Coke, 30/90mm, 12.5% Ash $390-410 Nut Coke, 10/25mm, 13/14% Ash $340-360 Foundry Coke, 80/220mm, 12% Ash $500-520 Chinese coke prices include 40% export tax applied since August 2008. US$/tonne cfr northern Europe: Blast Furnace Coke, 30/90mm, 10.5/11.5% Ash Nut Coke, 10/25mm, 12/13% Ash Coke Breeze, 0/10mm, 12/14% Ash Foundry Coke, 90/250mm, 8/10.5% Ash (Delivered) Dec 2012 $450-460 $340-360 $500-520 Jan 2013 $300-310 $270-275 $360-370

$260-280 $250-260 $140-160 390-420 ($500-539)

$260-280 $270-290 $140-160 390-420 ($511-550)

$260-280 $270-290 $140-160 380-410 ($500-539)

US$/tonne cfr India: Blast Furnace Coke, 30/90mm, 11.5/12.5% Ash US$/tonne fob Australia (Premium Grades): Hard Coking Coal Quarterly Contract Hard Coking Coal Spot Weak Coking Coal Spot US$/tonne cfr China: Hard Coking Coal

$305-315

$290-300

$290-300

$170 $150-160 $95-100

$170 $158-162 $110-115

$165 $160-165 $115-120

$170-175

$170-175

$175-180

Prices are obtained via informal discussions with industry participants. Detailed specifications used as reference for above prices are on www.resource-net.com/prices.htm.

Blast Furnace Coke Prices

$600 $500 Coal Price, $/tonne fob Coke Price, $/tonne $400 $300 $200 $100 $0 $350 $300 $250 $200 $150 $100 $50 $0

Coking Coal Prices

F M eb-0 a 9 Auy-0 9 Nog- 0 v- 9 Fe 09 M b-1 a 0 Auy-1 0 Nog-1 0 v F -10 M eb-1 a 1 Auy-1 1 Nog-1 1 v Fe - 11 M b-1 a 2 Auy-1 2 Nog-1 v- 2 12

China Export, 12.5% Ash India, 11.5/12.5% Ash

China Dom, 12.5% Ash N Europe, 10.5/11.5% Ash

January 2013

F M eb-0 a 9 Auy-0 9 Nog- 0 9 v Fe - 09 M b-1 a 0 Auy-1 0 Nog- 1 0 v F - 10 M eb-1 a 1 Auy-1 1 Nog- 1 v- 1 Fe 11 M b-1 a 2 Auy-1 2 Nog- 1 v- 2 12
Hard Coking - Contract Weak Coking Hard Coking - Spot

PIG IRON OUTPUT DATA

SEASONALLY ADJUSTED & ANNUALIZED DATA MILLION TONNES Mar-12 Apr-12 May-12 Europe Austria Belgium France Germany Italy Netherlands United Kingdom Other Europe Americas Canada United States Brazil Other Latin America Asia China India Japan South Korea Taiwan Middle East Africa Australasia CIS Republics TOTAL 94.69 6.16 4.17 10.06 27.23 9.97 5.99 4.95 26.16 81.01 7.69 34.97 29.12 9.23 849.12 673.69 36.84 83.99 42.70 11.90 11.45 5.30 4.02 81.49 1,127.08 95.26 6.08 3.88 9.63 26.98 9.87 5.90 5.81 27.11 80.94 7.66 35.05 28.97 9.26 863.17 680.28 45.64 82.83 42.85 11.56 9.77 5.29 4.57 81.57 1,140.57 97.39 5.70 4.32 10.11 28.11 9.98 5.43 8.57 25.17 75.84 7.84 33.63 26.17 8.19 844.02 665.09 44.79 80.46 41.88 11.80 10.10 5.41 4.43 81.46 1,118.65 Jun-12 95.57 5.72 3.82 9.09 27.89 9.50 5.95 8.78 24.80 70.83 6.79 31.02 26.31 6.72 833.42 651.35 45.18 82.69 41.16 13.04 9.26 5.24 4.58 80.92 1,099.82 Jul-12 95.77 5.59 4.20 9.74 27.22 9.55 6.28 8.24 24.96 73.01 7.85 30.72 26.74 7.70 851.22 669.69 43.96 82.90 42.26 12.40 10.34 5.30 4.44 78.08 1,118.16 Aug-12 92.80 5.68 4.45 10.22 26.55 9.64 5.89 7.74 22.63 74.40 7.22 34.02 25.28 7.88 817.36 634.19 44.49 83.99 42.40 12.28 10.81 5.19 4.37 79.41 1,084.34 Sep-12 90.64 5.39 3.71 9.04 26.68 9.59 5.75 8.01 22.48 70.44 7.44 29.26 25.99 7.75 818.56 640.84 43.71 81.49 41.53 10.99 10.68 5.15 4.40 82.63 1,082.51 Oct-12 87.02 5.50 3.57 8.91 27.09 8.95 5.78 8.04 19.18 70.57 7.58 26.82 28.50 7.68 813.93 640.60 41.29 78.89 41.70 11.46 11.46 5.15 4.34 83.48 1,075.94 Nov-12 89.48 5.80 4.39 9.43 26.66 8.78 5.98 8.01 20.43 69.85 7.89 28.00 26.19 7.75 798.10 625.89 41.32 79.41 39.96 11.51 11.69 5.19 4.00 84.04 1,062.35 % Monthly Change 6 Months 1 Year -1.8% -0.1% 0.2% -0.6% -0.7% -1.7% -0.7% -1.5% -5.0% -0.6% 1.9% -3.0% 0.6% 1.9% -1.0% -0.9% -1.9% -1.1% -0.6% -2.8% 4.1% -0.4% -2.1% 1.2% -0.8% -0.2% 0.3% 0.1% -0.4% 0.5% -1.3% -0.3% 4.2% -2.0% -1.6% -0.9% -2.0% -1.1% -2.1% -0.1% -0.2% 0.8% 0.2% -0.2% 0.0% -0.1% -0.2% -0.7% -0.1% -0.2%

1175 1150 1125

Million tpy

Annualized Global Pig Iron Output Data

Progression of Historical Rates of Increase of De-seasonalized Global Pig Iron Output

3.0% 2.5% 2.0%
% Change Per Month

1100 1075 1050 1025 1000 975

Mar-12 May-12 Aug-12 Jun-12 Nov-12 Feb-12 Apr-12 Jan-12 Oct-12 Dec-11 Sep-12 Jul-12

1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0%

Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12

Actual Seasonally Adjusted One-Year Trend = -0.2% /Month

-2.5%

Six-Month Period

One-Year Period

Pig iron data are from the World Steel Association. Output data have been deseasonalized, i.e. adjusted for established seasonal (monthly) variations, and annualized. Monthly rates of change have been measured over periods of six months and one year.

COKE TRADE DATA

000 TONNES Coke Exports China Czech Republic Japan Poland Ukraine Coke Imports Europe Austria Czech Republic France Germany Sweden United Kingdom Asia Japan South Korea Taiwan North America Canada United States Other Brazil South Africa % Ch YoY -69% -26% 87% -15% 15% -11% -16% -24% -35% -43% -41% 7% -9% 49% -21% -11% -27% -6% Qtr 2 12 Qtr 3 12 Qtr 4 12 Aug-12 Nov-12 Dec-12 60 23 17 211 Sep-12 Oct-12 46 35 145 255 Jul-12 110 32 129 529 236 2011 2012 1,016

3,299 508 659 5,854 1,985

335 117 367 1,377 655

277 100 361 1,413 634

155

54 37 141 411 225

113 31 91 473 172

49 77

1,320 528 868 4,101 82 113

371 155 165 837 14 18

284 136 116 725 14 16

102 47 53 254 4 7

96 39 31 233 8 1

86 50 32 238 2 7

14 43 247 9 4

726 395 136

362 202

249 88 64

189 80 51

82 59

95 21 20

26 18 19

67 41 12

76 25 14

67 35 27

403 1,268

96 349

71 132

12 45

10 25

49 62

68 29

83 51

2,164 390

1,591

449 67

183 53

429

87 18

64 24

32 11

136 34

82 27

Polish Coke Exports

600
6 5

World Coke Trade

$600 $500
$/tonne cfr

Million Tonnes

000 tonnes

500

$400
3

$300
2 1 0 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12

400

$200 $100
Q3 12

Nov

Feb

Mar

Apr

May

300
Oct

Jan

Dec

Aug

June

Sept

July

2010-11

2011-12

Trade Volume

Price

Data from national customs authorities, extracted using code CN 2704 0019 (Other Coke & Semi-Coke of Coal).

METALLURGICAL COAL TRADE DATA

000 TONNES Australia All M et Coal Exports Export Price: A$/tonne fob US$/tonne fob Hard Coking: Exports Export Price: A$/tonne fob US$/tonne fob Semi-Soft Coking, PCI: Exports Export Price: A$/tonne fob US$/tonne fob Canada M et Coal Exports Export Price: C$/tonne fob US$/tonne fob China Coking Coal Imports Sea-borne From Mongolia United S tates M et Coal Exports Export Price: US$/tonne fob %Ch YoY 17% 10% 30% 10% 20% 41% -5% 2% Qtr 2 12 Qtr 3 12 Qtr 4 12 Aug-12 Nov-12 Sep-12 Dec-12 7,581 5,299 2,282 Oct-12 11,262 $144 $148 7,172 $153 $157 4,090 $128 $131 2,448 $156 $158 3,605 2,317 1,288 4,240 $149 Jul-12 10,898 $170 $175 2011 2012

133,590 $235 $242

35,668 $181 $183

34,473 $171 $178

11,052 $172 $181

12,522 $170 $178

87,500 $256 $264

21,724 $198 $200

21,342 $191 $198

6,137 $193 $199

7,108 $190 $199

8,097 $189 $197

46,090 $194 $200

13,944 $155 $157

13,131 $139 $145

4,762 $140 $145

3,944 $141 $148

4,425 $136 $142

27,630 $266 $269

8,627 $207 $206

7,384 $189 $190

3,001 $189 $186

1,780 $193 $194

2,604 $185 $189

44,518 24,468 20,050

53,479 34,420 19,059

15,363 10,058 5,305

8,841 5,361 3,480

17,050 10,760 6,290

3,852 2,192 1,660

2,569 1,746 823

2,420 1,423 997

5,864 3,144 2,720

63,078 $205

18,295 $173

15,406 $163

5,741 $168

5,239 $159

4,426 $162

4,283 $146

45 40

Australian Metallurgical Coal Exports

$300 $250 Million Tonnes
US$/tonne fob

US Metallurgical Coal Exports

20

$250

15

Million Tonnes

$200
US$/tonne fob

35 30 25 20 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12

$200 $150 $100 $50

10

$150

$100

0 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Q4 12

$50

Exports

Price

Exports

Price

Data from national customs authorities. Prices indicated are deduced from customs statistics and therefore include all coking coal grades.