The New Coal Market

What is next for Indonesia?

Rodrigo Echeverri
Head of Analysis, Energy Coal
May 15th, 2017
The New Coal Market
What is next for Indonesia?

This is Noble
What drove the spike in prices in 2016?
Market update - Lets talk China and India
Market update Supply discipline?
Market update Supply & Demand Balance
Long-term outlook for the coal industry
Noble: A leading Global Coal Trader
Noble Capabilities Energy Coal Origination
Russia:
Established relationships with
reliable producers/partners to
Colombia: tap these niche origination
Established relationships markets
with reliable
producers/partners to tap
these niche origination Indonesia:
markets
Origination of both high\low
CV coal across key provinces
Shareholder in joint venture
company providing coal
logistics services
Road/port operations in
Central Kalimantan

South Africa:
Providing trading expertise to
Resource Generation Limited.
Estimated production from
project is expected to be 18-
25mtpa. South African
sovereign wealth fund major
shareholder.
Australia:
Strategic partnerships with
established mining companies
Actively supporting development
of specific listed exploration
entities
Noble: A leading Global Coal Trader
Noble Capabilities Marketing in China
Long-term strategic presence in China (est. 1991)
Ability to reliably provide multi-origin coals to coastal and inland customers
Local partnerships and Joint Ventures enhance our understanding of local conditions
We continuously adapt our portfolio to the needs of the Chinese market

China:
Diversified presence in China since 1991
Strong energy coal trading relationships with
major utilities/importers
Offices in 11 cities, including Hong Kong,
Beijing, Tianjin, Shanghai

We provide value to our Chinese customers because we

understand the local market conditions
Noble: A leading Global Coal Trader
Noble Capabilities India
Evolution Coal Sales Volumes (MT)

15

2014- 10

2017
2011-
Period of
2013 consolidation;
2008 - customer
More focused retention/refer 5

2010 on repeat biz; rals; structured

nurture
Mostly spot finance;
relationships; partnerships
2005 biz; term
First office fragmented contracts
opened customer begin; 0
profile freight; 2009 2010 2011 2012 2013 2014 2015
hedging

A niche player focussed on strategic/structured deals

Value & relationship based business fundamentals
Wide range of products and services under one umbrella
Noble: A leading Global Coal Trader
Noble Capabilities Marketing in the rest of Asia
Long-term strategic presence in the South, Northeast and Southeast Asian markets
Global footprint provides market insight, which ultimately benefits our customers
Strong brand presence and track record across Asia

Korea:
Multiple-year
commitments with gencos

Japan :
Market leading position
Reliable supply into JPUs (Japanese
Power Utilities) and JGIs (Japanese
General Industries) via long-term
Southeast Asia: contracts
Multi-year commitments with
utilities in Malaysia, Philippines,
Vietnam and Thailand
JV to supply coal to domestic
consumers/utilities
The New Coal Market
What drove the spike in prices in 2016?

Rodrigo Echeverri
Head of Analysis, Energy Coal
May 15th, 2017
The New Coal Market
What drove the spike in prices in 2016?
Chinese mine safety
Energy Coal Prices
inspections, strong
120 demand, low Hydro 800

China releases
100 production capacity to 700
China implements
curb prices
policy to cap
production
80 600
USD/tonne

60 Cyclone Debbie 500

wipes out 12-15
Hot, dry summer million tonnes of
in China boosts Australian supply
40 400
coal consumption
Rains and supply
Limited supply disruptions in
20 Newcastle Coal FOB response in Indonesia
300
Australia and
Domestic China prices Indonesia
0 200
Oct-15

Oct-16
Jan-16

Jan-17
Apr-16

Apr-17
Jul-16

The rally was not only about China but China drove it
The New Coal Market
What drove the spike in prices in 2016?
The Balance Changed:
Source: Composite Chinese imports grew by 43
million tonnes as a result of
domestic policy changes

New coal-fired capacity in Asia

started being commissioned
(Vietnam, Malaysia,
Philippines, Taiwan)

Indian demand continued to

weaken (but more than offset
by China growth)

Atlantic demand in H1 2016

was the lowest in one decade

Supply response was

limited

A demand Shock without a supply response

The New Coal Market
Market update - Lets talk China

Rodrigo Echeverri
Head of Analysis, Energy Coal
May 15th, 2017
The New Coal Market
Lets talk China: The good

Period Jan-Apr 16 Jan-Apr 17 YOY Chinese demand for

imported coal remained
Coking 24.8 23.5 -1.3 strong in Jan-Apr 2017
Thermal
19.6 24.0 4.4 Particularly, the lower-
(Bituminous) grade coals have
Sub-bituminous 5.8 9.9 4.1 remained in-the-money for
Chinese buyers, which
Anthracite 7.9 5.0 -2.9 blend this material with
domestic high-Sulphur
Lignite 17.1 27.0 9.9 coals

Total 75.2 89.4 14.2

Chinese imports were very strong in Jan-Apr 2017

The New Coal Market
Lets talk China: The good

Source: Fenwei

Power output is up 8% in Jan-April

Power demand remains Healthy
The New Coal Market
Lets talk China: The good

Source: Fenwei

Power output is up 9% in Jan-April

The New Coal Market
Lets talk China: The good

Source: Fenwei

Hydro output is down -11% in Jan-April

The New Coal Market
Lets talk China: The bad

Chinese coal output and

flows have become
much stronger in the
last few weeks just as
we head into the
shoulder season
Coal output is now
above 2015 levels,
before the NDRC
production cuts
Coal transportation is
Source: Fenwei also strong, signaling
that the coal chain has
recovered

Domestic Demand has Rebounded

The New Coal Market
Lets talk China: The bad

Inventories at power
stations have
started to increase
in absolute terms
While power output
decreases
seasonally
This means that the
days of stock
available have
rapidly recovered

Source: Fenwei

Chinese utilities are under less pressure to restock

The New Coal Market
Lets talk China: The bad

Domestic prices in
China are expected to
continue to fall
throughout Q2 17
Prices might stabilize
around 550-570 RMB in
the summer
The international market
will have to adjust to re-
open the imports
arbitrage
Imports in May and June
are likely to be weak

The Chinese imports arbitrage is currently closed

The New Coal Market
Lets talk China: The bad

Imports volumes are

expected to fall in May and
June as a result of the
arbitrage closing
Rain precipitation and
temperatures will define
whether we see a recovery
in Chinese imports in Q3
We have revised down our
expectations for growth
Year-on-year to +15-20
million tonnes
The New Coal Market
Lets talk China: The ugly

Sentiment in physical market is still very weak buyers

asking for offers but not coming back with firm bids /
indicative bids that are far from current market level.
Coal market protectionisms is returning to China - several
meetings in the last couple of weeks to discuss imports
quality
Request gencos to think about political priority and
restrict their imports, which also increases risk for
domestic traders
We expect a slow-down in Chinese imports growth in
the second half of 2017
 The New Coal Market
Market update India Indian imports have
already fallen 10 million
tonnes YOY
The Government has
requested state-owned
utilities to stop
importing
Lower plant-load factor
as industry to recover
from demonetization
We expect imports to
continue to decline in
the short term, realizing
a drop of 15 million
tonnes in 2017

Indian imports are expected to remain weak for the rest of 2017
The New Coal Market
Market update Supply discipline?

Rodrigo Echeverri
Head of Analysis, Energy Coal
May 15th, 2017
The New Coal Market
Market update Supply discipline?
Indonesian exports
are now heading to
2015 levels likely to
grow 20 million
tonnes YOY
Producers have
contracted additional
tonnes for H2 2017
Some producers have
also hedged at least
part of their portfolio,
which means they
will remain
profitable, even if
prices fall
Supply response in Indonesia seems to be starting
The New Coal Market
Market update Supply discipline?

The domestic market

continues to grow at a
rate of 8-10 million
tonnes per annum
As a result, most 3800
NAR producers have
decided to increase
domestic sales
Moreover, resource
nationalism remains a
political issue in
Indonesia

Domestic sales are already up 2.4

million tonnes in Jan-Feb 2017
The New Coal Market
Market update Supply discipline?

While we do not believe

Australia will increase exports
in 2017, strong exports in April
indicate that the impact to
Debbie was small for Energy
coal
Australia is on track to grow
exports by 1-2 million tonnes in
2017
Russia has continued to take
advantage of the strong
market, and exported at record
levels throughout Q1 2017
The New Coal Market
Market update Supply discipline?

Colombian exports grew

by 4 million tonnes in Jan-
Apr 17
With no growth in the
Atlantic market, the
surplus tonnes have
started to flows into the
Pacific market
South African exports have
been sluggish in 2017, as a
result of quality and
mining issues, as well as
weakness in the Indian
market
The New Coal Market
Market update Supply/Demand Balance

Rodrigo Echeverri
Head of Analysis, Energy Coal
May 15th, 2017
The New Coal Market
Market update Supply/Demand Balance

We believe the international market is starting

to show signs of oversupply for 2017
The New Coal Market
Market update Costs

Margins are strong across the board: even at $70/t

FOB Newcastle thermal, seaborne operating margins
are now all positive after several years of losses.

What will miners do with this advantage buy, build,

maintain or return to shareholders?

Source: WoodMackenzie, May 11 th, 2017

The New Coal Market
Market update Long-term hope?

Rodrigo Echeverri
Head of Analysis, Energy Coal
May 15th, 2017
 The New Coal Market
Market update Long-term hope?
Energy Coal Demand - 2014-2030
1,400
China
Source: Noble research
1,200 Northeast Asia (Ex-
China)
South Asia
1,000
Southeast Asia
Demand - MT

800
Middle East
600
Africa

400 Europe

200 Mediterrenean

Americas
0
2015

2017

2019

2021
2022

2024

2026

2028
2029
2014

2016

2018

2020

2023

2025

2027

2030
Source: Composite

The global seaborne coal market will grow by 3

approximately 300 million over 2017-2030 0
 The New Coal Market
Market update Long-term hope?
Coal Supply 2016 2017 2018 2019 2020 2025 2030
Indonesia 370 385 385 385 390 350 320
Australia 200 200 202 202 210 220 220
Russia 106 116 105 105 105 125 150
Colombia 88 90 90 95 100 95 85
South Africa 73 74 75 78 80 80 80
US 16 26 30 30 30 30 30
Other 37 34 34 34 37 29 33
Total supply 890 925 921 929 952 929 918
Total Demand 890 915 922 932 958 1,058 1,293
Balance 0 11 -1 -3 -6 -130 -374
Source: Noble research
Unless prices remain strong in the long- New coal projects will be needed in five
term, Indonesia and Australia will not be years Mainly Australia and South
able to ramp-up production when the Africa
market needs it (2020 onwards)
Coal from Colombia and USA might also
Only the lowest cost producers with be required to fulfill base requirements
existing spare capacity will be able to in Asia
expand
The New Coal Market
Conclusions

SHORT TERM
Chinese imports growth has started to slow-down
We are unlikely to see further YOY growth from May onwards

Supply response has started, especially in Indonesia, Russia and the

USA
Coal Prices will remain under pressure throughout the shoulder season
LONG-TERM

Our view has not changed, we believe that coal prices need to remain
strong over the next 10-15 or the market will become chronically
undersupplied as Indonesian exports weaken and high-quality coals
become less abundant