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Macro Update
Tuesday, October 28, 2014
Analyst Contacts:
Contacts:
Holly Stewart (713) 393393-4512
[email protected]
Alonso GuerraGuerra-Garcia (713) 393393-4511
[email protected]
•Howard Weil is a division of Scotia Capital (USA) Inc., a member of the Scotiabank group, and represents Scotiabank’s energy equities business in the United States.
•For all relevant disclosures and certifications see Appendix A Important Disclosures of this report.
Conclusions…
Weekly taketake-aways
Production – Total U.S. coal production for the week ending October 18 rose ~3% y/y to 18.7 mm tons. YTD supply is now down 5 mm tons.
Pricing –
Regional Pricing – CAPP pricing rose ~2.5% to $57.40/st, while PRB pricing fell ~1.5% to $11.90/st. ILB spot increased 0.5% to $40.85/st. All other
tracked pricing regions remained essentially unchanged during the week.
Coal Carloads – Compared to the same week last year, average weekly Eastern carloads were flat and Western carloads increased 6.5%.
Eastern carloads fell 6% from the previous week, while Western volumes were up ~0.5% w/w.
CoalCoal-fired vs. GasGas-fired Economics – CAPP coal is out of the money for the third consecutive week as the eastern natural gas price trades
around $3.65/mcf. The coal-fired fleet burning PRB coal remains economic at current gas prices.
Steel Utilization – Domestic steel plant utilization for the week ending October 27 rose ~1% to 76.3%.
Monthly updates
August EIA Updates –
Coal Generation – For the month of August, the coal-fired fleet ran at a 66.4% capacity factor vs. 65.7% last August. The 5-year average for the month
is 69.9%.
Coal Consumption – August coal demand at the electric sector declined ~1% y/y to 80.8 mm tons. Consumption was 7.5% below the 5-year average of
87.3 mm tons.
Coal Inventories – Coal stocks for the month decreased 4.3 mm tons vs. the 5-year average draw of 6.2 mm tons. Inventories of 121 mm tons are now
~26% below an elevated 5-year average.
Chinese Coal Imports – For the month of September, Chinese coal imports declined ~27% y/y to 16.3 mt, though rose ~7.5% from August
levels. YTD Chinese coal imports are ~11.5% lower than 2013.
Met Coal Imports – September met coal volumes decreased ~38% compared to September 2013 to 4.5 mt, though rising ~17.5% m/m.
Thermal Coal Imports – September thermal coal imports moved ~21% lower y/y to 11.8 mt, while gaining 4.5% from August levels.
International Steel Production – Chinese steel supply for the month of September increased ~3% y/y to 67.5 mt, though down 2% m/m.
Excluding China, international steel production declined ~0.5% y/y to 66.9 mt and rose ~1% from August.
Global Steel Utilization – World steel utilization for the month of September increased ~2.5% from last month to a rate of 76.1%, though
down 4% y/y.
Page 2
Weekly Updates…
Page 3
Domestic Coal Supply
Weekly production
W ee k ly Pro duction by Re gion ( m m to ns)
W ee k 4 2
Regio n
Appalachian
Interio r
1 8 -Oct-1 4
4.9
1 9 -Oct-1 3
4.8
% change
5 -yr avg
5.8
Y /Y
1.4%
5 -yr avg
-16.9%
3.5
3.4
3.2
3.0%
7.5%
W estern
10.4
10.0
11.1
4.1%
-6.1%
To tal
1 8 .7
1 8.1
2 0 .1
3 .2 %
-7 .0 %
YearYear-toto-date production
YTD Pro duction by Region (m m to ns)
Regio n
2014
To-Date
2013
5 -yr avg
Total U.S. coal production for the week ending
October 18 rose ~3% y/y to 18.7 mm tons when
compared to the same week last year.
% change
Y /Y
5 -yr avg
Appalachian
217.8
221.3
254.7
-1.6%
-14.5%
Interio r
W estern
149.3
148.0
133.8
0.9%
11.6%
421.5
424.3
450.3
-0.7%
-6.4%
To tal
7 8 8 .6
7 9 3 .6
8 38 .8
-0 .6 %
-6 .0 %
2014 production is 5 mm tons below that of 2013.
2013 ended the year with 984 mm tons produced,
32.5 mm tons below that of 2012.
Page 4
Coal Pricing…futures picture
C APP F utures Pricing - W eek ly C hanges
C urrent W eek Previous W eek % C hange
1 Q1 5
$55.60
$54.30
2 .4 %
2 Q1 5
$56.00
$54.95
1 .9 %
3 Q1 5
$56.60
$55.80
1 .4 %
4 Q1 5
$57.40
$56.95
0 .8 %
Average
$ 5 6 .4 0
$ 5 5 .5 0
1 .6 %
$56.07
PRB F utures Pricing - W eek ly C hanges
C urrent W eek Previous W eek % C hange
1 Q1 5
$11.85
$12.00
-1 .3 %
2 Q1 5
$12.40
$12.45
-0 .4 %
3 Q1 5
$12.50
$12.80
-2 .3 %
4 Q1 5
$12.85
$13.15
-2 .3 %
Average
$ 1 2 .4 0
$ 1 2 .6 0
-1 .6 %
Page 5
Coal Pricing…domestic spot market
C APP
PRB
W estern Bit
N APP
Illinois Basin
W eek ly C om parisons
10/25/2014
10/18/2014
Weekly Change
10/25/2013
Annual Change
12 Month High
12 Month Low
$57.40
$55.95
2.6%
$61.45
-6.6%
$67.75
$55.40
$11.90
$12.10
-1.7%
$11.00
8.2%
$13.60
$11.00
$32.25
$32.25
0.0%
$41.00
-21.3%
$41.00
$32.25
$60.50
$60.50
0.0%
$62.35
-3.0%
$62.40
$59.50
$40.85
$40.65
0.5%
$39.00
4.7%
$46.50
$39.00
Quarterly C om parisons (Avg.)
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
$69.35
$57.10
$52.45
$55.30
$58.70
$63.38
$68.45
$71.28
$77.55
$78.83
$80.20
$78.79
$67.53
$63.65
$13.00
$8.77
$8.79
$8.90
$11.28
$12.20
$14.43
$13.59
$13.83
$12.73
$14.42
$13.53
$9.58
$8.30
$73.00
$42.23
$43.62
$39.31
$40.00
$40.00
$40.08
$41.00
$41.00
$41.00
$41.00
$41.00
$41.00
$41.00
$67.13
$45.04
$46.62
$50.97
$59.29
$60.98
$66.44
$69.54
$73.98
$77.70
$77.05
$62.98
$67.13
$60.33
$55.50
$39.46
$38.22
$38.65
$38.63
$39.38
$42.27
$44.54
$45.00
$45.00
$45.00
$48.29
$53.78
$47.53
3Q12
$63.05
$8.99
$41.00
$60.28
$43.58
4Q12
$66.21
$10.09
$41.00
$60.58
$38.57
1Q13
$65.70
$10.37
$41.00
$60.96
$38.85
2Q13
$66.84
$10.67
$41.00
$62.30
$40.06
3Q13
$60.96
$10.87
$41.00
$63.37
$39.22
4Q13
$61.56
$11.01
$40.92
$62.29
$39.20
1Q14
$63.10
$11.61
$40.00
$62.20
$40.98
2Q14
$65.20
$13.22
$37.29
$61.49
$41.70
3Q14
$58.00
$11.68
$32.92
$60.21
$42.05
4Q14
$57.11
$12.01
$32.25
$60.25
$40.70
Q/Q Change (4Q14 vs. 3Q14)
-1.5%
2.8%
-2.0%
0.1%
-3.2%
Y/Y Change ('14 vs. '13)
-4.6%
13.1%
-13.1%
-1.9%
5.1%
Weekly pricing
CAPP pricing rose ~2.5% to $57.40/st, while
PRB pricing fell ~1.5% to $11.90/st. ILB
spot increased 0.5% to $40.85/st.
All other tracked pricing regions remained
essentially unchanged during the week.
Quarterly pricing
For the first time in eight consecutive Qs,
the PRB saw negative pricing activity in 3Q,
down ~12% q/q, while the CAPP and
Western Bit moved 11% and ~12% lower,
respectively. ILB was the lone gainer at
~1%.
Source: Platts Coal Trader
Page 6
Spot Pricing…international markets
Australia Coal Pricing*
$ /m etric tonne
$200
Australian spot pricing
$150
For the week ending October 24, Newcastle
pricing fell ~0.5% to $63.05/mt. Pricing
has continued its downward spiral, with
prices averaging their lowest level since May
2009.
$100
$50
$0
Source: Bloomberg
* Newcastle 6700 kc GAD fob steam coal spot price
2 0 09
$71.12
$66.01
$71.84
$78.55
$ 71 .8 8
Q1
Q2
Q3
Q4
Y ear
2 01 0
$95.05
$99.69
$93.82
$108.26
$9 9 .2 1
20 1 1
$127.72
$119.97
$120.50
$113.93
$1 2 0.5 3
2 0 12
$112.29
$94.49
$86.15
$84.25
$ 94 .2 9
2 01 3
$91.33
$85.38
$77.06
$82.02
$8 3 .9 5
20 1 4
$77.43
$72.73
$67.96
$63.89
% C hange
-15.2%
-14.8%
-11.8%
-22.1%
We ek End
10/18/2013
10/24/2014
10/17/2014
% Change
$79.35
$63.05
$63.30
-2 0 .5 %
-0.4%
NW Europe Coal Pricing*
$ /m etric tonne
$225
$175
European spot pricing
$125
Spot pricing in NWE rose ~2% w/w to
$73.21/mt. The drop in the European
thermal market has been a persistent
theme since late 2012.
$75
$25
Source: Bloomberg
* North West Europe steam coal marker
Q1
Q2
Q3
Q4
Ye ar
2009
$69.85
$65.22
$69.27
$77.24
$ 7 0 .3 9
2010
$78.17
$88.47
$92.66
$109.38
$ 9 2 .1 7
2011
$123.27
$124.33
$124.04
$114.51
$ 1 2 1 .5 4
2012
$100.57
$89.47
$90.93
$88.77
$ 9 2 .4 3
2013
$86.39
$79.87
$76.27
$84.28
$ 8 1 .7 0
2014
$79.00
$74.51
$75.51
$72.57
% C hange
-8.5%
-6.7%
-1.0%
-13.9%
W ee k End
10/18/2013
10/24/2014
10/17/2014
% C hange
$82.30
$73.21
$71.82
-1 1 .0 %
1 .9 %
Page 7
Coal vs. Gas Economics
Coal vs. Gas Economics
Assum ptio ns
Power price ($/Mwh)
Fuel costs ($/ton)
C oal price
Transportation cost
Total fuel cost
Emissions costs
SO2 cost
NOx cost
Total emissions costs
Total coal cost (per ton)
To tal fue l co st (pe r m m btu)
Heat rate of plant (mmbtu/MWh)
Total coal cost ($/MWh)
Gro ss m argin ($/M W h)
Dark Spread C alculatio n
PRB
C entral App
$38.70
$36.35
Spark Spread C alculation
PRB
C e ntral App
$38.70
$36.35
$1 2 .1 0
$25.00
$37.10
$ 5 5.9 5
$12.00
$67.95
$0.01
$0.00
$0.01
$37.11
$ 2 .1 1
10.0
$21.08
$0.01
$0.00
$0.01
$67.96
$2 .8 3
10.0
$28.32
$ 3 .5 1
7.5
$26.33
$ 3 .6 4
7.5
$27.30
$1 7 .6 2
$8 .0 3
$ 1 2 .38
$ 9 .0 5
Source: Platts Coal Trader & Megawatt Daily, Howard Weil, Inc.
CAPP coal is out of the money for the third consecutive week as the eastern natural
gas price trades around $3.65/mcf. The coal-fired fleet burning PRB coal remains
economic at current gas prices.
Page 8
Coal Carloads
(in carloads)
W eek ly C o m pariso ns
Week 42 - 2014
Week 41 - 2013
Weekly Change
Week 42 - 2013
Annual Change
12 Month High
12 Month Low
UN P
C SX
N SC
BN I
33,263
34,188
-2.7%
30,194
10.2%
36,369
29,615
21,697
23,657
-8.3%
18,942
14.5%
27,234
14,540
21,081
21,855
-3.5%
23,824
-11.5%
28,234
17,908
45,897
44,807
2.4%
44,116
4.0%
48,077
36,099
Quarte rly C om parisons (Avg.)
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
Q/Q Change (4Q14 vs. 3Q14)
Y/Y Change (4Q14 vs. 4Q13)
2009
2010
2011
2012
2013
Y/Y Change ('13 vs. '12)
39,542
36,376
39,994
38,932
41,245
37,204
43,064
41,723
37,359
31,084
37,576
34,541
30,752
31,203
35,063
30,868
33,016
31,456
34,606
31,456
-9.1%
1.9%
38,155
38,711
40,809
35,140
31,971
-9.0%
28,009
28,714
28,361
27,305
28,315
27,976
27,754
26,772
23,694
23,321
22,990
21,348
21,127
21,885
21,014
20,117
20,999
23,518
22,192
23,518
6.0%
16.9%
28,538
28,098
27,704
22,838
21,036
-7.9%
27,500
28,750
28,856
28,535
30,565
29,288
29,343
29,580
26,309
25,961
25,598
25,839
25,857
25,399
24,982
23,631
22,266
25,952
24,093
25,952
7.7%
9.8%
26,392
28,410
29,694
25,927
24,967
-3.7%
44,532
45,820
47,132
48,313
45,645
41,515
42,273
48,140
43,231
37,676
43,922
42,030
42,276
39,942
46,093
43,080
43,706
42,352
43,121
42,352
-1.8%
-1.7%
45,940
46,449
44,393
41,715
42,848
2.7%
Eastern Rail Cars (CSX & NSC)
Avg. Eastern coal carloads were flat this
week compared to the same week last
year.
Eastern coal carloads fell 6% from last
week.
Western Rail Cars (BNI & UNP)
Compared to the year ago week, avg.
Western coal carloads increased 6.5%.
Western coal carloads gained ~0.5% w/w.
Source: Companies & Howard Weil, Inc.
Page 9
Steel Plant Utilization
Steel Plant Capacity Utilization
100%
Domestic Weekly
For the week ending October 27,
steel plant utilization rose ~1%
to 76.3%.
75%
Avg U.S. Utilization ~78%
50%
25%
U.S. Utilization (weekly)
Global Utilization (monthly)
Source: Bloomberg
Dom estic Utilization
20 09
2 010
1Q
42.5%
67.6%
2Q
44.6%
73.2%
3Q
54.2%
71.1%
4Q
62.8%
68.6%
201 1
73.7%
74.7%
76.2%
74.3%
20 12
77.6%
78.7%
75.0%
71.7%
201 3
75.6%
77.9%
77.9%
76.1%
Y ea r
7 0.1 %
74 .7%
7 5.7 %
76 .9%
2 010
78.8%
81.7%
74.3%
75.7%
7 7.6 %
201 1
81.1%
82.5%
78.8%
74.0%
79 .1%
20 12
78.5%
80.4%
77.5%
75.5%
7 8.0 %
201 3
79.0%
79.6%
77.2%
75.7%
77 .9%
51 .0%
Global Utilization
20 09
1Q
65.0%
2Q
68.0%
3Q
74.7%
4Q
75.4%
Y ea r
70 .8%
2 01 4
76.5%
76.4%
78.8%
75.7%
2 01 4
77.2%
78.5%
75.3%
% C hange
1.2%
-1.8%
1.1%
-0.5%
% C hange
-2.3%
-1.4%
-2.4%
W eek Begin
10/28/2013
10/27/2014
10/20/2014
M onth End
9/30/2013
9/30/2014
8/31/2014
% C hange
75.8%
76.3%
75.7%
0 .7%
0 .8%
% C hange
79.3%
76.1%
74.2%
Global Monthly
For the month of September,
global utilization increased
~2.5% m/m to a rate of 76.1%.
-4.0%
2 .6%
Page 10
Freight Rates
Today’s freight rates remain relatively low
compared to historical levels
North American vessels to Europe – For the
week ending October 10, the average coal
freight rate for three North American ports to
Rotterdam was $13.72/ton. The average rate
fell ~1.5% w/w and is now ~32% lower
compared to last year.
Australian shipments – Shipping rates for coal
out of Queensland to Rotterdam declined ~9%
from last week to $10.30/ton. Rates are down
~41% y/y. Coal movement out of Queensland
to Japan was $13.40/ton, a loss of ~3.5% w/w
and ~40% lower compared to the previous year.
Page 11
Monthly Updates…
Page 12
Coal Stockpiles
August stockpile drawdown
Coal stocks for the month decreased 4.3 mm
tons vs. the 5-year average draw of 6.2 mm
tons. Inventories of 121 mm tons are now
~26% below an elevated 5-year average.
The latest coal consumption and inventory
estimates suggest a forward demand cover of 46
days. This is below April 2012’s peak estimate of
119 days of inventory.
Page 13
Coal Demand
Total U.S. consumption
June demand decreased ~1% versus the same
month last year to 79.5 mm tons. June 2014
coal consumption was ~6% lower compared to
the 5-year average for the month.
2013 total coal consumption ended the year up
3.9% at 925.1 mm tons compared to the same
period in 2012.
Electric Sector demand
August coal consumption at the electric sector
declined ~1% y/y to 80.8 mm tons.
August demand was 6.5 mm tons or 7.5% below
the 5-year average of 87.3 mm tons for the
month.
2014 YTD demand of 589.2 mm tons is ~2.5%
higher than the 576.1 mm tons in 2013.
Total 2013 demand at the electric sector rose
nearly 37 mm tons or 4.5% to 856.9 mm tons
from 2012 levels.
Page 14
Coal Imports & Exports
U.S. Coal Exports
14
August U.S. coal exports decreased ~24% y/y to
7.6 mst, and rose 6.5% m/m. YTD exports of 66.8
mst are ~16% lower than the 79.9 mst shipped
last year.
12
(m m short tons)
U.S. coal imports and exports
10
8
6
Met coal volumes for August declined ~3% y/y to
5.1 mst. Additionally, exports increased ~5%
versus July levels.
4
2
0
Thermal volumes fell ~46% y/y to 2.5 mst, and
were up ~9.5% m/m.
Met
Source: McCloskey
Steam
Full year 2013 exports of 116.7 mm tons were
~6.5% below 2012 volumes.
Chinese imports
For the month of September, Chinese coal imports
declined ~27% y/y to 16.3 mt, though rose ~7.5%
from August levels.
Coking coal imports decreased ~38% compared to
September 2013 to 4.5 mt, though rising ~17.5%
m/m.
Thermal coal imports moved ~21% lower y/y to
11.8 mt, while gaining 4.5% from August levels.
2014 YTD Chinese coal imports are ~11.5% lower
than 2013.
Page 15
Exports Continued….Australia
Australian Coal Exports
35
million metric tonnes
30
25
20
15
10
5
0
Thermal exports
Met exports
Source: Bloomberg
Total Australian exports – Total Australian export volumes for the month of August increased ~11.5% vs. last
year to 33.9 mt, and rose 4% m/m. 2014 YTD volumes are ~9.5% higher than 2013.
Metallurgical coal – Australian met coal exports for August rose ~7.5% y/y to 15.6 mt. Additionally, exports
decreased 5.5% from July levels.
Thermal coal – August thermal exports increased to 18.3 mt, up ~15% y/y and ~14% m/m.
Page 16
International Steel Production
Chinese steel production continues to rise
Chinese steel supply for the month of September increased ~3% y/y to 67.5 mt, though down 2% m/m.
International steel production (excluding China) declined ~0.5% y/y to 66.9 mt and rose ~1% from
August.
Page 17
Appendix A: Important Disclosures
Important Disclosures
We, Alonso Guerra-Garcia and Holly Stewart, certify that the views expressed in this research report accurately reflect our personal views about the subject securities or issuers; and I,
Alonso Guerra-Garcia and Holly Stewart, certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation or views contained in this
research report
Important Disclosures
This report was prepared by a Howard Weil Research analyst. Howard Weil is a Division of Scotia Capital (USA) Inc., a US Registered broker-dealer and a member of the New York Stock
Exchange and FINRA. Howard Weil Research analysts focus primarily on the US Energy Sector. Scotia Capital (USA) Inc. is a wholly owned subsidiary of Scotia Capital Inc., a Canadian
registered investment dealer, and indirectly owned by The Bank of Nova Scotia. Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and
investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including Scotia Capital Inc. and Scotia
Capital (USA) Inc. In addition to Howard Weil Research, Scotiabank publishes and distributes Scotiabank Global Banking and Markets Equity Research (“Scotiabank Research”), which is a
separate research publication. Howard Weil Research Analysts and Scotiabank Research Analysts are independent from one another and their respective coverage of issuers are different.
In addition, because they are independent from one another, Howard Weil Research Analysts and Scotiabank Research Analysts may have different opinions on the short-term and longterm outlooks of local and global markets and economies.
This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report
may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own
financial advisors as they deem necessary. Investors should consider Howard Weil’s research and/or ratings as only a single factor in making their investment decisions. Past performance
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All pricing of securities in reports is based on the closing price of the securities’ principal marketplace on the night before the publication date, unless otherwise explicitly stated.
Any prices that are stated in this report are for informational purposes only. Scotiabank, Global Banking and Markets makes no representation that any transaction may be or could have
been effected at those prices.
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