Coking Coal

A Strategic Market Outlook to 2020

What is the outlook for the coking coal supply/demand balance?
What will happen to future coking coal price settlements?
What are the implications of reduced carbon emissions on the industry?
Is there going to be sufficient coking coal to meet projected steel production rates?

NEW
fOr 2010

I would positively recommend Metal Bulletin Research as a

unique provider of steel and its raw materials market
analysis and forecasts
Michael Amez, Manager, A.T. Kearney, USA

Coking Coal: A Strategic Market Outlook to 2020

Foreword
Therevivalofthecokingindustrywasdrivenbyanincreaseinworldsteeldemand.Steelconsumption
had been relatively lackluster and stable compared to other commodities, but the last decade was
defined by a drastic increase in world steel and iron making, led by China, accompanied by the
associateddemandforcokingcoalandcoke.Economicgrowthreachedacrescendobythefirsthalfof
2008 after which major economies have sunk into severe recessions, with the exception of China and
ASEANnations,whotoalargeextentkeptdemandforrawcommoditiesafloat.WhileEuropeandthe
USAdecreasedtheirappetiteforcokingcoal,ironandcoke,Chinacontinuedtoimport.Webelievethat
despite a severe downturn, growth in the developing nations in particular has not yet peaked. Two
questionsthereforearise,namelyhowmuchcokingcoalisneededandassumingwehavetheabilityto
meetcokingcoalrequirements,dowehavethesameabilitytothedemandofthecokingsector?Weset
outtoanswerthesequestionsinabivolumereport.Thisreport,Volume1,addressesthefirstquestion
anddelvesintothedynamicsofthecokingcoalmarket.

GlossaryofTerms
Term/Abbreviation Explanation

Term/Abbreviation

Explanation

Btu

BritishThermalUnits

JFY

JapaneseFiscalYear

Bn

billion

JV

JointVenture

CAGR

Compoundannual
growthrate

Million

Dwt

Deadweighttonnes

m3

Metrescubed

EIS

EnvironmentalImpact
Assessment

NDRC

NationalDevelopment
andReformCommission

HCC

Hardcokingcoal

RBCT

RichardsBayCoal
Terminal

HotBanking

Atechniqueusedamong tpa
Japanesecoke
tpm
producersto
temporarilyidlecoking
tpd
capacity

IEA

InternationalEnergy
Agency

yoy

Tonnesperannum
Tonnespermonth
Tonnesperday
Yearonyear

[Metal Bulletin Research] | Glossary of Terms

Coking Coal: A Strategic Market Outlook to 2020

TableofContents
1.ExecutiveSummary................................................................................................................................. 11
2.GlobalOverview...................................................................................................................................... 14
2.1Supply................................................................................................................................................ 14
2.1.1.ProductionOutlook................................................................................................................... 18
2.2Demand............................................................................................................................................. 21
2.2.1ForecastMethodology ............................................................................................................... 21
2.2.2OverviewofCokeSupply ........................................................................................................... 21
2.2.4StructureofCokeProduction .................................................................................................... 23
2.2.5TrendsinCokeProduction......................................................................................................... 25
2.2.6DemandOutlook........................................................................................................................ 28
2.3Trade ................................................................................................................................................. 29
2.3.1OverviewofCokingCoalTrade .................................................................................................. 29
2.4DryBulkFreightMarket.................................................................................................................... 37
2.4CarbonEmissions .............................................................................................................................. 40
2.5Price .................................................................................................................................................. 42
2.5.1Overviewof2009 ....................................................................................................................... 42
2.5.32

SupplyDemandBalance ..................................................................................................... 44

2.5.5Forecastto2020 ........................................................................................................................ 47
3.TypesofCoal ........................................................................................................................................... 49
3.1HardCoking....................................................................................................................................... 52
3.2SemiHardCoking.............................................................................................................................. 53
3.3Semisoftcoking................................................................................................................................ 53
3.3PCI ..................................................................................................................................................... 53
3.3Anthracite ......................................................................................................................................... 53
4.MiningMethodsandProcessingOfCokingCoal .................................................................................... 54
4.1UndergroundMiningMethods ......................................................................................................... 54
4.2SurfaceMiningMethods................................................................................................................... 56
4.3Beneficiation ..................................................................................................................................... 56
5.CostofProduction .................................................................................................................................. 57
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Coking Coal: A Strategic Market Outlook to 2020

6.CountryAnalysis...................................................................................................................................... 59
6.1Australia ............................................................................................................................................ 59
6.1.1Overview .................................................................................................................................... 59
6.1.2Supply......................................................................................................................................... 64
6.1.3Demand...................................................................................................................................... 80
6.1.4Trade .......................................................................................................................................... 81
6.2Bangladesh........................................................................................................................................ 86
6.2.1Supply......................................................................................................................................... 86
6.3Brazil.................................................................................................................................................. 87
6.3.1Supply......................................................................................................................................... 87
6.32Demand....................................................................................................................................... 87
6.4Canada .............................................................................................................................................. 88
6.4.1Supply......................................................................................................................................... 88
6.4.2Demand...................................................................................................................................... 99
6.4.3Trade .......................................................................................................................................... 99
6.5Chile ................................................................................................................................................ 100
6.5.1Demand.................................................................................................................................... 100
6.6China ............................................................................................................................................... 101
6.6.1Supply....................................................................................................................................... 101
6.6.2Demand.................................................................................................................................... 105
6.6.3Trade ........................................................................................................................................ 110
6.6.4CoalExchange .......................................................................................................................... 117
6.6.5RisktothisAnalysis .................................................................................................................. 117
6.7Colombia ......................................................................................................................................... 119
6.7.1Supply....................................................................................................................................... 119
6.7.2Demand.................................................................................................................................... 120
6.7.3Trade ........................................................................................................................................ 122
6.8EU&UK........................................................................................................................................... 122
6.8.1Overview .................................................................................................................................. 122
6.8.2Supply....................................................................................................................................... 123
6.8.3Demand.................................................................................................................................... 126
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Coking Coal: A Strategic Market Outlook to 2020

6.8.4Trade ........................................................................................................................................ 129

6.9India ................................................................................................................................................ 134
6.9.1Overview .................................................................................................................................. 134
6.9.2Supply....................................................................................................................................... 137
6.9.3Demand.................................................................................................................................... 140
6.9.4Trade ........................................................................................................................................ 146
6.10Indonesia....................................................................................................................................... 148
6.10.1Supply..................................................................................................................................... 148
6.10.2Demand.................................................................................................................................. 152
6.10.3Trade ...................................................................................................................................... 152
6.11Japan ............................................................................................................................................. 154
6.11.1Supply..................................................................................................................................... 154
6.11.2Demand.................................................................................................................................. 155
6.11.3Trade ...................................................................................................................................... 159
6.12Mongolia ....................................................................................................................................... 160
6.12.1Supply..................................................................................................................................... 160
6.13Mozambique ................................................................................................................................. 164
6.13.1Supply..................................................................................................................................... 165
6.14Nigeria ........................................................................................................................................... 168
6.15NewZealand ................................................................................................................................. 168
6.15.1Supply..................................................................................................................................... 168
6.16OtherAsia(exclJapan).................................................................................................................. 169
6.16.1Supply..................................................................................................................................... 169
6.16.2Demand.................................................................................................................................. 170
6.16.3Trade ...................................................................................................................................... 172
6.17Russia ............................................................................................................................................ 173
6.17.1Supply..................................................................................................................................... 173
6.17.2Demand.................................................................................................................................. 178
6.17.3Trade ...................................................................................................................................... 179
6.18SouthAfrica................................................................................................................................... 183
6.18.1Supply..................................................................................................................................... 183
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Coking Coal: A Strategic Market Outlook to 2020

6.18.2Demand.................................................................................................................................. 183
6.19Ukraine.......................................................................................................................................... 184
6.19.1Supply..................................................................................................................................... 184
6.19.2Demand.................................................................................................................................. 185
6.20USA................................................................................................................................................ 188
6.20.1Overview ................................................................................................................................ 188
6.20.2SupplyUSA............................................................................................................................. 189
6.20.3Demand.................................................................................................................................. 201
6.20.4Trade ...................................................................................................................................... 206

ListofCharts,Figures,Tables
Charts
Chart1:Regionalcontributiontoproduction............................................................................................. 19
Chart2:CokeProductionbyCountry ......................................................................................................... 24
Chart3:Averageagedistributionofexistingcokeplants ......................................................................... 25
Chart4:Averageageofexistingcokeplantsbycountry........................................................................... 26
Chart5:Worldcokeversusironoutput...................................................................................................... 28
Chart8:Balticindexaverage ...................................................................................................................... 38
Chart9:Outlookforfleetcapacity........................................................................................................... 40
Chart10:AustralianJapancontractcokingcoalprices .......................................................................... 43
Chart11:Chinesedomesticpricescomparedtocontractprices ............................................................ 44
Chart12:Outlookforhardcokingcoal ..................................................................................................... 48
Chart13:OutlookforlowvolatilePCICoal............................................................................................... 48
Chart14:Outlookforsemisoftcokingcoal.............................................................................................. 48
Chart15:Australiancokesupply ................................................................................................................ 80
Chart16:Australianseaborneexports ....................................................................................................... 82
Chart17:CanadianProducers .................................................................................................................... 89
Chart18:TeckCoalProductionProfile(000t)........................................................................................... 92
Chart19:WCCCproductiontargets............................................................................................................ 93
Chart20:OutlookforWCCCbycoaltype................................................................................................... 94
Chart21:OutlookforCanadianExports ..................................................................................................... 99
Chart22:NewstructureofChina'scokeindustry ................................................................................... 107
Chart23:Chinesecokeproductionbyregion......................................................................................... 108
Chart24:Chinesecokeproductionbyplanttype .................................................................................... 108
Chart25:Chinaseabornenetexport...................................................................................................... 110
[Metal Bulletin Research] | List of Charts, Figures, Tables

Coking Coal: A Strategic Market Outlook to 2020

Chart26:China'sconsumptionrate....................................................................................................... 118
Chart27:OutlookforColombiancokingcoalproduction ........................................................................ 120
Chart28:outlookforColombiancokingcoaldemand ............................................................................. 122
Chart29:ExportsfromCzechRepublic.................................................................................................... 130
Chart30:Franceseaborneimports ......................................................................................................... 131
Chart31:Germanseaborneimports ........................................................................................................ 132
Chart32:Polishseaborneexports ........................................................................................................... 133
Chart33:UKseaborneimports............................................................................................................... 133
Chart34:Indianseaborneimports .......................................................................................................... 146
Chart35:Indonesianseaborneexports ................................................................................................. 152
Chart36:AgeprofileofJapan'scokeovens ............................................................................................ 156
Chart37:JapaneseSeaborneImports ..................................................................................................... 160
Chart38:Chinesecokingcoalimports..................................................................................................... 161
Chart39:Mongoliansupply .................................................................................................................... 164
Chart40:KoreanSeaborneImports ......................................................................................................... 172
Chart41:TaiwanSeaborneImports ........................................................................................................ 173
Chart42:Russianseaborneexports ......................................................................................................... 180
Chart43:SouthAfricancokingcoaldemand............................................................................................ 184
Chart44:OutlookforUkrainianCokingCoalMarket ............................................................................... 184
Chart45:MarketshareofUSAmetallurgicalcoalproducers .................................................................. 189
Chart46:ComparativesalesvolumesofUSAcompanies ....................................................................... 189
Chart47USAmetallurgicalproductionbyregion&type........................................................................ 190
Chart48:CentralAppalachianproduction ............................................................................................... 191
Chart49AverageminingcostsofUSAcompanies ................................................................................ 191
Chart50:USAmetallurgicalcoalsalestoUSAcokeplants...................................................................... 192
Chart51:CokeproductionfromUSASteel.............................................................................................. 204
Chart52:ForecastofNorthAmericancokingcoalconsumption............................................................. 206
Chart53:USAseaborneexports............................................................................................................... 207

Figures
Figure1:MetallurgicalCoalSeaborneTradeFlows2009........................................................................... 33
Figure2:Longtermtradepatterns............................................................................................................. 36
Figure3:Indicativecoalcurvescombiningrank,gradesandtypesofcoal............................................... 52
Figure4:Room&PillarMining .................................................................................................................. 55
Figure5Longwallshearer ........................................................................................................................... 55
Figure6:Longwallshieldsupports............................................................................................................. 56
Figure11:ProformaMacArthurownershipstructure ............................................................................... 73
Figure12:Chinamajorcoalroutes .......................................................................................................... 115
Figure14:LocationofJapanesecokeproducers ...................................................................................... 155
Figure15:SchematicDiagramofSCOPE21............................................................................................ 157
Figure16:LocationofRussianCokingCoalMines................................................................................... 174
[Metal Bulletin Research] | List of Charts, Figures, Tables

Coking Coal: A Strategic Market Outlook to 2020

Figure17:OrganogramofSunocoInc.................................................................................................... 201

Tables
Table1:WorldMetallurgicalCoalProduction .......................................................................................... 17
Table2:PlannedMetallurgicalCoalprojectsfrom20092012 .................................................................. 18
Table3:Worldcokingcoalproductionoutlook......................................................................................... 20
Table4:Largestcokeproducers ................................................................................................................. 22
Table5:Worlds'largestcokeproducers..................................................................................................... 24
Table6:Permanentcokebatteryshutdowns............................................................................................. 27
Table7:Additionalcokecapacity ............................................................................................................... 27
Table8:Demandoutlookforcokingcoal ................................................................................................... 29
Table9:TradeofCokingCoal ..................................................................................................................... 30
Table10:Analysisoftheseabornemarket................................................................................................. 35
Table11:EstimationsforGreenbordertrade............................................................................................ 37
Table12:Overviewofthebulktrademarket............................................................................................. 39
Table13:Totalcokingcoaldemandsupplybalance: ................................................................................. 44
Table14:Tradedcokingcoalbalance......................................................................................................... 45
Table15:Explanationofcoalproperties .................................................................................................... 50
Table16:Classificationofcoal.................................................................................................................... 51
Table17LongwallEquipmentCosts ........................................................................................................... 58
Table18:OutlookforAustraliancokingcoal.............................................................................................. 59
Table19:OutlookforAustraliancokingcoalproduction ........................................................................... 64
Table20:EstimatedcokingcoalproductionfromAngloCoal.................................................................... 65
Table21:ProductionoutlookforIsaacPlains............................................................................................. 66
Table22:ForecastofEagleDown'sproduction.......................................................................................... 66
Table23:CostestimatesofEagleDownsproject...................................................................................... 67
Table24:ResourcesofBelvederedeposit.................................................................................................. 67
Table25:ProductionoutlookforWashpool............................................................................................... 68
Table26:OutlookforBHPAustraliancokingcoalproduction................................................................... 69
Table27:OutlookforSonomaproject ....................................................................................................... 70
Table28:ProductionoutlookforCoal&AlliedIndustries ......................................................................... 70
Table29:OutlookforFelixCoal.................................................................................................................. 71
Table30:OutlookforGloucester'sproduction ......................................................................................... 75
Table31:ProductionoutlookforMiddlemount......................................................................................... 76
Table32:ProductionoutlookforOliveDowns ......................................................................................... 76
Table33:OutlookforPeabodyEnergysAustralianmetallurgicalcoal...................................................... 77
Table34:OutlookforRiometallurgicalcoalproduction............................................................................ 79
Table35:Consumptionofcokingcoalbyplant.......................................................................................... 81
Table36:OutlookfortradedAustraliancokingcoal .................................................................................. 84
Table37:FreightcapacityascomparedtoAustralianseabornesupply .................................................... 86
Table38:OverviewofBraziliancokingcoalindustry ................................................................................. 87
[Metal Bulletin Research] | List of Charts, Figures, Tables

Coking Coal: A Strategic Market Outlook to 2020

Table39:OverviewofCanadiancokingcoalmarket.................................................................................. 88
Table40:PerformanceofGrandeCacheCoal ........................................................................................... 89
Table41:SummaryofReserves.................................................................................................................. 90
Table42:SummaryofPeaceRiverCoalOperations................................................................................... 91
Table43:PerformanceofTeckCoal ........................................................................................................... 92
Table44:WCCCOperations........................................................................................................................ 95
Table45:CanadianMetallurgicalCoalProspects....................................................................................... 97
Table46:OutlookforCanadianCoalProduction....................................................................................... 97
Table47:CanadianCoalPorts .................................................................................................................. 100
Table48:Chilecokeproduction ............................................................................................................... 100
Table49:SummaryofChina'scokingcoalindustry.................................................................................. 101
Table50:OutlookforChinesecokingcoalproduction............................................................................ 105
Table51:Chinesecokingcoaldemand..................................................................................................... 110
Table52:MajorcoaltransportingraillinesinShanxi,ShaanxiandInnerMongoliaArea ....................... 116
Table53:Chineseportcapacity2009....................................................................................................... 116
Table54:Chinarailwaycapacity.............................................................................................................. 117
Table55:SummaryofColombiancokingcoal.......................................................................................... 119
Table56:CostsofHunzaCoalProject ..................................................................................................... 120
Table57:Columbiancokeproduction ...................................................................................................... 121
Table58:OutlookforCzechRepublicproduction .................................................................................... 123
Table59:OutlookforGermanhardcoalproduction ............................................................................... 124
Table60:OutlookfortheproductionofPolishcokingcoal ..................................................................... 125
Table61:CzechRepubliccokeproductionoutlook.................................................................................. 127
Table62:Polishcokecapacity .................................................................................................................. 128
Table63:OutlookforPolishcokingcoaldemandbycokingfacility......................................................... 128
Table64:Consumptionofimportedcoalbytypes................................................................................... 129
Table65:Consumedbysteelindustry...................................................................................................... 129
Table66:OverviewofIndianCokingCoal ................................................................................................ 134
Table67:Indiancoalreserves................................................................................................................... 135
Table68:Coalreservesbystate ............................................................................................................... 136
Table69:Productionofcokingcoal.......................................................................................................... 140
Table70:CokeCapacity ............................................................................................................................ 143
Table71:CostofSaurashtraFuelsExpansion .......................................................................................... 145
Table72:CokingcoalrequirementsforIndiancokeproduction ............................................................. 145
Table73:ProjectedportcapacityinIndia ................................................................................................ 147
Table74:OutlookforIndonesianCokingCoalProduction....................................................................... 151
Table75:Indonesiancoalportcapacity ................................................................................................... 153
Table76:OverviewofJapanesecokingcoalmarket ................................................................................ 154
Table77:Japanesecokingcoalconsumptionbycokeovenplant ........................................................... 158
Table78:Japan'scokingcoalrequirements ............................................................................................. 159
[Metal Bulletin Research] | List of Charts, Figures, Tables

Coking Coal: A Strategic Market Outlook to 2020

Table79:ComparisonofBengaCoalwithAustralianCoal....................................................................... 166
Table80:BengaCoalphasesofdevelopment .......................................................................................... 166
Table81:NewZealandCokingCoalProduction ....................................................................................... 169
Table82:CokingcoalconsumptioninAsiabycokeplant ........................................................................ 172
Table83:OverviewofRussiancokingcoal ............................................................................................... 173
Table84:RussianCoalProduction............................................................................................................ 178
Table85:Russiancokeproducers............................................................................................................. 178
Table86:AnalysisofRussianinfrastructurecapacity............................................................................... 182
Table87:Ukrainiancokeproduction........................................................................................................ 186
Table88:SummaryofUSAcokingcoalmarket ........................................................................................ 188
Table89:MetallurgicalcoalacquisitionsbyUSAcompanies ................................................................... 192
Table91:SummaryofAlphaCoalReserves.............................................................................................. 194
Table92:ProductionOutlookforCliffs .................................................................................................... 195
Table93:SummaryofCliffsreserves ..................................................................................................... 196
Table94:ForecastofSuncokeCokeProduction ...................................................................................... 203
Table96:USAcoalportcapacity .............................................................................................................. 208

[Metal Bulletin Research] | 1. Executive Summary

10

Coking Coal: A Strategic Market Outlook to 2020

6.20.2SupplyUSA
The North American market is highly fragmented and competitive. Alpha Resources, Massey Energy,
WalterResources,PatriotandCleavelandCliffsconstitutethefivelargestmetallurgical coalproducers
andareresponsiblefor72%ofthetotalproduction.
USMetallurgicalCoalProducers
SunCoke
2%

Others
9%

ArchCoal
4%
UnitedCoalCorp
6%

Cliffs
9%

AlphaNatural
Resource/Foundat
ion
24%

CONSOL
7%
PatriotCoal
10%
Walter
Resources
11%

MasseyEnergy
18%

Chart45:MarketshareofUSAmetallurgicalcoalproducersSource:Tex,MBR

300

ComparativeSalesVolumes&CashMarginpertonne

250
TotalProduction:673, 000 t
AverageCashMargin:
$19/t

200
150

Comparative SalesVolumesasof6302009 (000t)

100

CashMargin perton asof6302009 ($/t)

50

AverageCash Margin($/t)

Peabody

Alpha

Massey

Alliance

JamesRiver

Chart46:ComparativesalesvolumesofUSAcompaniesSource:MBR,CompanySources

MajorcoalproducingcentresincludetheAppalachianregion,theIllinoisBasin,PowderRiverBasinand
otherwesterncoalfields.CentralAppalachia,incorporatingCentralandSouthernWestVirginia,Eastern
KentuckyandSouthWesternVirginiaisthesecondlargestcoalproducingregionintheUSAandisthe
primarysourceofhighquality,low,midandhighvolatilemetallurgicalcoal.Thiscoaltypicallyhashigh
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189

Coking Coal: A Strategic Market Outlook to 2020

fluidity levels, low sulphur content and is in high demand from the countrys main export partners,
namelyEuropeandSouthAmerica.
USMetallurgicalCoalProductionbyVolatileType
40

mtonnes

35
30

2007

25

2008

20

2009

15
10
5

Highvol

Midvol

Lowvol

mtonnes

USMetallurgicalCoalProductionbyRegion
50
45
40
35
30
25
20
15
10
5

2007
2008
2009

CentralAppalacia

SouthernAppalacia NorthernAppalacia

Chart47USAmetallurgicalproductionbyregion&typeSource:MBR

IngeneraldemandforcoalintheUSAremainsdismal,thoughtherearesignsofencouragement.Even
beforethefinancialcrisis,outputfrommajorUSAproducingregionshavebeendecliningforalmosta
decade,whilecostsescalated.

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190

Coking Coal: A Strategic Market Outlook to 2020

45

CentralAppalachianProductivity Declinedsince2000

40
35
30
25
20
15
10
5

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Chart48:CentralAppalachianproductionSource:CompanySources,MBR

MiningCosts

70
60

$/St

50
40
30
20
10

Massey
2004

Alpha
2005

Arch
2006

Consol
2007

2008

JWR
2009

Chart49AverageminingcostsofUSAcompaniesSource:CompanySources,MBR

Nowwiththerecentfinancialcrisis,productionhasdeclinedtounprecedentedlevels.Withrespectto
metallurgicalcoal,salestodomesticcokefoundriesdeclinedbyasmuchasaquarter(Chart50).Todate
product rationalization with announced production cuts in coal stand at a 100m tonnes on an
annualized basis. We however believe that the market has bottomed out and rationalization has
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Coking Coal: A Strategic Market Outlook to 2020

occurredtoalargeextent,characterizedbyaseriesofcorporatetakeoversandasynonymousinjection
ofcapitalandrevivalofproduction.
Metallurgical Coal Property Purchases
Company
m tonnes
ArcelorMittal
Mid vol
1.7
Concept
0.7
Mechel
Bluestone
1.5
Serverstal
PBS
1.5
Metinvest
United Coal
2.5
Total
7.9

Table89:MetallurgicalcoalacquisitionsbyUSAcompaniesSource:CompanySources,MBR

Itisourviewthatwearenowatthebeginningstagesofrecovery.Overallweexpecttherecoverytobe
slowasinmanydevelopingcountries,whosefinancialmarketswerenotsophisticatedenoughtoallow
themtoparticipatedirectlyinthesecuritizationofsubprimedebthaveonlyrecentlybegunfeelthefull
effectsofthefinancialcrisis.TheUSAisheavilydependentonBrazilandotherSouthAmericancountries
asatradingpartnerandthereforeitwillbeawhilebeforecapitalprojectsarebroughtbackonstream
anddemandfullyrecovers.

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

mtonnes

UScoalsalestoUScokeplants
35
30
25
20
15
10
5

Chart50:USAmetallurgicalcoalsalestoUSAcokeplantsSource:CoalTrans

Only11.9mtonnesofcrudesteelwasproducedinthefirstquarterof2009,representingadeclineof
53%fromtheprioryear.InadiscussionwithMetalBulletin,KevinCrutchfield,chiefexecutiveofficerof
AlphaNaturalResources,indicatedthathefeltencouragedbytherecentuptickinthesecondquarter
andrenewedinterestfrommetallurgicalcoalbuyerswhohadbeenabsentfromthemarketsince the
financial crisis began. As steel production increases globally, it is expected to have favorable impact
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192

Coking Coal: A Strategic Market Outlook to 2020

demandforAppalachiancoalsincethesellingpricesareintheregionof$115/tascomparedwith$165
$175/tinAsia.
Cruchfield continued saying that Europe, which accounts for around 40% of USA exports, has lagged
other regions with respect to metallurgical coal demand though metallurgical coal enquiries are
becomingmorefrequent,indicatingthatthemarketmaybepoisedforaturnaround.Othersignalsof
animpendingturnaroundinclude:

OakGroveResourcesLLC,awhollyownedsubsidiaryofCliffs,recalled100workersinAugustto
theOakGrovemetallurgicalcoalmine,promptedbyanimprovementincurrentorders

Walter Energy reported that its June shipments increased dramatically. In the first half of the
year,shipmentsfellby12%fromthesameperiodinthepreviousyearowingtoa40%declinein
EuropeanandBrazilianshipments

AlphaResourcessold600,000tonnesofadditionalmetallurgicalinJunecomparedtoMay2009

There has been resurgence in Chinese demand and eleven USA cargoes have been booked to
China.InMay2009Consolhadanopportunitytoexport88,000tonnesofcoaltoChina,whichis
unusualsincefreightcostsmakethesedealsprohibitive.Atthetimeitwasuncertainwhether
this was a onceoff deal, but it seems that Chinese are taking advantage of the lower
metallurgicalpricesandfreightratesandcouldincreaseUSAshipments

Massey Energy has rehired some of workers and expects Korea and India to consume 50% of
theirexports

BuchananandPinnaclelongwallmineshavereturnedtoproduction

Onthe15thofDecember2009,itwasannouncedthatXCoalhadsecuredasupplycontractto
supply the Chinese with 3.7m tonnes of coking coal of various grades for an average price of
$190/tfor2010.

We foresee the largest hindrance to the pace of USA metallurgical coal recovery is due to the excess
cokeinventories.Theprocessofidlingcokeovensisextremelycostly,resultinginmaycokeproducers
keeping their ovens running, even as steel mills were shut down and warehousing the output. It is
estimatedthatthereisatleastahalfayearssupplyofcokeinstorage.
AlphaCoal(FoundationCoal)
Alphacoalwasincorporatedin2002.Onthe15thofJulythecompanymergedwithCliffswhoacquired
alltheirsharesandtheninturnmergedwithFoundationCoalonthe11May2009.
Itproduce,processesandsellssteamandmetallurgicalcoalfromfourregions,namelyVirginia,WestVirginia,Kentucky(thermalcoalonly)and
Pennsylvania.Itsmetallurgicalcoalproductioningeneralcomprises44%ofsalesvolumeandconstitutes66%ofrevenue.Thecompanys

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Coking Coal: A Strategic Market Outlook to 2020

exposuretotheexportmarketissignificantandaccountsfor22%ofallmetallurgicalcoalexportsfromtheUSA.
Regional

State

Recoverable, Proven &

Business
Paramont/Alpha Land & Reserves
Dickenson-Russell
Kingwood
Brooks Run North
Brooks Run South
Amfire
Enerprise
Callaway/Cobra

Virginia
Virginia
West Virginia
West Virginia
West Virginia
Pennsylvania
Kentucky
West Virginia/

Probable Reserves
188
41
12
41
85
69
143
20

Total Tons
Assigned
60
41
1
24
38
50
64
16

Unassigned
128
0
11
17
47
19
78
4

Total Tons
Owned
2
1
4
2
-

Coal Type

Leased
188
41
12
38
84
66
141
20

Th/Met
Th/Met
Th/Met
Th/Met
Th/Met
Th/Met
Th
Th/Met

Table90belowshowsasummaryoftheAlphadepositsandreserves
Regional

State

Business
Paramont/Alpha Land & Reserves
Dickenson-Russell
Kingwood
Brooks Run North
Brooks Run South
Amfire
Enerprise
Callaway/Cobra

Probable Reserves
Virginia
188
Virginia
41
West Virginia
12
West Virginia
41
West Virginia
85
Pennsylvania
69
Kentucky
143
West Virginia/V
20

Recoverable, Proven &

Total Tons
Assigned
60
41
1
24
38
50
64
16

Unassigned
128
0
11
17
47
19
78
4

Total Tons
Owned
2
1
4
2
-

Coal Type

Leased
188
41
12
38
84
66
141
20

Table90:SummaryofAlphaCoalReservesSource:AlphaCoal,MBR

Alpha had less than half a million tonnes of metallurgical coal committed and priced for 2010 with
approximately9.5mtonnesopenforcontract.Thecompanyanticipatessettlingsomeofits2010open
tonnageinthe2ndhalfofthisyear.
ThecompanysCEOhasindicatedthattheyexpectmarginsforhighqualitymetallurgicalcoaltoimprove
assteelconsumptionincreasesfromcurrentrecessionarylevels.Thecompanyhasthereforecautioned
thatwhilethecurrentoutlookisforcokingcoaldemandtoimprovemarkedlyin2010,itsprojected22m
tonnescouldbereducedbytwothirds,butcontinuesonitscurrentoperatingschedule.
ArchCoal
Arch coal is the second largest producer in the United States, based on total annual production of
approximately140mtonnesandaccountsforroughly12%oftotaldomesticproduction.Thecompany
mines and processes predominantly lowsulphur coal for domestic coalfired electric generation
facilities. Metallurgical production is small overall and accounted for 4.4m tonnes of the overall
productionin2008.
Inthesecondhalfof2009,revenuedeclinedbynearly30%owingtoadeclineinvolumesandsofter
prices. The company sold only 2.7m tonnes from its Appalachian mines, a 30% drop from the same
period the year before and the average sale price fell 12.8% to $60.66/t from $69.54/t in the same
comparison.

[Metal Bulletin Research] | 6. Country Analysis

194

Th/Met
Th/Met
Th/Met
Th/Met
Th/Met
Th/Met
Th
Th/Met

Coking Coal: A Strategic Market Outlook to 2020

CleavelandCliffs(Cliffs)
CleavelandCliffsboastsareservebase(provenandprobable)inexcessof240mtonnesofhighquality,
low volatile metallurgical coal. They own and operate two North American coal mining complexes
located in West Virginia and Alabama that currently has a joint capacity of 6.5m tpa and have a 45%
stakeinanAustralianconcern.Fortheyearended31December2008,theysoldatotalof3.2mtonnes
ofcokingcoal,comparedwith2.8mtonnesonanannualizedbasisintheprioryear.(1.2mtonneswas
soldforthefivemonthsended31December2007)
TheNorthAmericanoperationsarewelllocatedwithexcellentaccesstoinfrastructure.Bothminesare
positioned near rail or barge lines, providing access to international shipping ports and allow Cliffs to
focus on the export market. In 2008 56% of the companys North American coal supplied to the
seaborne market, mostly to Europe. This compares with 66% exportorientated coal in 2007, which is
indicativeofthefinancialcrisisasEuropeansteelmakershavelimitedtheirdemand.Anothermeasureto
consider in order to appreciate the effects the financial crisis has had on the company and the coal
industryatlargeisthatin2008approximately84%ofthe2008productionwascommittedunder1year
contractstosupplyintegratedsteelandcokeproducersinEuropeandAmerica.Thiscomparestoonly
45%ofproductioncommittedin2009whichincludescarryovertonnage.
Cliffs North American mines are underground operations and include the Pinnacle Complex, Green
RidgeandOakGrovemines.ThePinnacleComplexhasbeeninoperationsince1969andislocated30
milesSouthWestofBeckley,WestVirginiaandcomprisesthePinnacleandGreenRidgemines.Green
Ridge mine has been operational since 2004 and produces roughly 0.30.5m tonnes of coal annually.
PinnacleMinehasproducedbetween1.42.5mtpaforthelastfiveyears.
TheOakGrovemineislocated25milesoutofBirminghamAlabama.Theminehasoperatedsince1972
andproduced11.7mtonnesoverthepastfiveyears.
The company has a 45% interest in the Australian open cut Sanoma Project, a mixed metallurgical
(~30%)andthermal(~70%)coaldepositfromthePermianMooranbahcoalmeasuresinQueenslands
BowenBasin.Firstshipmentscommencedin2008withequitysalesvolumesequivalentto933tonnes.
In2009thecompanyexpectstosell3.2mtonnesofcoal.
The Sanoma deposit has 27m tonnes of reserves and metallurgical supply agreements with JFE and
ChinaSteel.ItsuppliesitsthermalcoaltoKoreanUtility.
Production (m tonnes)
2008 *
2008
2009
Pinnacle Complex
1.64
3.50
3.60
Oak Grove
0.97
Sanoma Project
7.70
8.60
Total
2.62
11.20
12.20
* Annualised from date of acquisition 31 July 2007

2010
3.67

2011
3.86

2012
4.16

2015
4.82

2018
5.58

2020
6.15

Type
Markets
Low Vol, Met coal N. America, Europe

8.77
12.44

9.21
13.07

9.21
13.37

9.21
14.03

9.21
14.79

9.21
15.36

Met/Therm

China, Japan

Table91:ProductionOutlookforCliffsSource:CompanySources,MBR

[Metal Bulletin Research] | 6. Country Analysis

195

Coking Coal
A Strategic Market Outlook to 2020
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UK 7995

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