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Steelmaking Coal Markets March 31, 2015 Réal Foley, Vice President, Coal Marketing
Steelmaking Coal Markets March 31, 2015 Réal Foley, Vice President, Coal Marketing
Coal Markets Forward Looking Information
Both these slides and the accompanying oral presentation contain certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of the Securities Act (Ontario) and comparable legislation in other provinces. Forward-looking statements can be identified by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or “does not anticipate”, or “believes”, or variation of such words and phrases or state that certain actions, events or results “may”, “could”, “should”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Teck to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements include statements relating to management’s expectations with respect to coal market demand, including crude steel production forecasts, coal imports by China, expectation with respect to reduction in coal production globally and coal supply generally.
These forward-looking statements involve numerous assumptions, risks and uncertainties and actual results may vary materially. These statements are based on a number of assumptions, including, but not limited to, assumptions noted in the various slides and oral presentation, assumptions regarding general business and economic conditions, interest rates, the supply and demand for, inventories of, and the level and volatility of prices of coal. The foregoing list of assumptions is not exhaustive.
Events or circumstances could cause actual results to differ materially. Factors that may cause actual results to vary include, but are not limited to: unanticipated developments in business and economic conditions in the principal markets for Teck’s products or in the supply, demand, and prices for coal, political events, social unrest and changes in general economic conditions or conditions in the financial markets.
Certain of these risks are described in more detail in Teck’s annual information form available at www.sedar.com and in public filings with the SEC at www.sec.gov. Teck does not assume the obligation to revise or update these forward-looking statements after the date of this document or to revise them to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.
2
Coal Markets Market Slowly Rebalancing
3
• Good demand and stable growth
• Prices remain at unsustainable levels
• Production cuts are taking hold; Additional cuts continue to be announced
• USA production under most pressure
• Lower pricing environment impacts future projects
Coal Markets Agenda
Demand
Supply
Sales
Summary
4
Source: WSA, NBS, Wood Mackenzie, CRU 1. Europe includes 12 countries.
Coal Markets Crude Steel Production Continues to Grow
5
Crude steel production to grow at ~1.5-2.5% CAGR between 2014 and 2019
Ex-China seaborne demand for steelmaking coal is forecasted to increase
by ~25 Mt in the same period
Crude Steel Production 2014-2019 Crude Steel Production 2014 (Mt)
Global 1,662 (+1.2% YoY)
China 823 (+0.9% YoY)
Global, ex-China 839 (+1.5% YoY)
JKT 205 (+3% YoY)
Europe1 208 (+1.3% YoY)
India 83 (+2.3% YoY)
60.0
15.4 13.2
75.4
47.7
14.8
6.9
68.8
0
10
20
30
40
50
60
70
80
Seaborne Landborne Stock change at six ports
Import demand
Mt
2013 2014
Coal Markets Mixed Views on China Coking Coal Imports
6
2019
F
China's Coking Coal Imports and Stock Change at Ports
Imports down by <10% when combined with inventory drawdowns; stocks at ports near record lows
China Rolling 12-Month Coking Coal Imports
2019 Forecast: 50~95 Mt
0
10
20
30
40
50
60
70
80
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
Jul-1
4
Jan-
15
Mt
Seaborne Mongolia
Source: GTIS, Wood Mackenzie, CRU, Mysteel
Coal Markets Stronger Fundamentals in Rest of the World
7
-60
-40
-20
0
20
40
09 10 11 12 13 14 15
Mt
Annual change in met. coal demand (excl. China), minus annual change in seaborne exports
Slacker market
Tighter market
CRU Forecasts A Tighter Market Outside China in 2015
Source: CRU
Coal Markets Agenda
Demand
Supply
Sales
Summary
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Coal Markets Steelmaking Coal Trade Rebalancing
9
Australia led export growth while others started to pull back • Australia regained market share
(exports +16 Mt YoY to 185 Mt) • US refocused on Atlantic market
(exports -3 Mt YoY to 57 Mt) • Canada closed production (exports
-4 Mt YoY to 31 Mt)
US Steelmaking Coal Exports
48 50 52 54 56 58 60 62
Mt
Canada Steelmaking Coal Exports
26
28
30
32
34
36
Mt
Australian Steelmaking Coal Exports
160 165 170 175 180 185 190
Mt
Source: GTIS
Coal Markets Steelmaking Coal Market Curtailments
10 Source: Teck estimates based on public announcements * Production cuts are total market curtailments including sustaining cuts (mine idlings) and period cuts (guidance reductions).
Curtailments Production Curtailments By Region
Cumulative Production Curtailments
• >30 Mt of production cuts have been announced • <50% implemented at the end of 2014 • Unsustainably low prices also impacting major players • Market imbalance ~10-15 Mt
0 5 10 15 20
Australia
USA
Canada
New Zealand
Others
Mt
0
5
10
15
20
25
30
35
2014 2015 2016 2017 2018+
Mt
Coal Markets US Steelmaking Coal Exports Most at Risk
11
Current US exports are ~2.5 times above historical average levels
US Export HCC Margin Curve
US Steelmaking Coal Exports (ex. Canada)
0
10
20
30
40
50
60
70
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mt
2000-2009 average: 23 Mt
2010-2014 average: 55 Mt
Wood Mackenzie’s 2015 margin curve at price of $102 estimates that ~45% of US HCC exports are cash negative
-100
-80
-60
-40
-20
0
20
40
0 4 7 11 15 18 22 26 29 33 37 40
US$
/met
ric to
nne
Million metric tonnes
Source: GTIS, Wood Mackenzie
• China’s average HCC CFR cash costs are ~US$130/t in 2015
• All provinces except Shanxi are cash negative at current Argus prices (~50% of total domestic HCC production)
• Even in Shanxi (lowest cost and largest HCC producing province), ~45% of production is uneconomical
• Limited room for producers to further reduce mining costs
Coal Markets China Not a Low-Cost Producer
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China HCC Cash Cost CFR by Province in 2015
Shanxi HCC Cash Cost CFR by County in 2015
Source: Fenwei Consulting
Coal Markets Australian Coal Production Growth Lower
13 Source: CRU * Potential production includes production from existing mines and new projects.
Australian Potential Steelmaking Coal Production • CRU significantly reduced
potential Australian steelmaking coal production* between its 2011 and 2015 forecasts
• Significantly lower production is now expected from non-committed projects
• Low price environment reduced Australian 2025 potential production by >70 Mt 2015 2017 2019 2021 2023 2025
100
120
140
160
180
200
220
240
260
280
300 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Mt
Probable & Possible (2015 Fcast) Exis>ng and CommiDed (2015 Fcast) Probable & Possible (2011 Fcast) Exis>ng and CommiDed (2011 Fcast)
Coal Markets Agenda
Demand
Supply
Sales
Summary
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Coal Markets We Are a Leading Steelmaking Coal Supplier To Steel Producers Worldwide
15
North America
~5% Europe ~15% China
~25%
High quality, consistency, reliability, long-term supply
Asia excl. China ~50%
Source: Teck Resources Limited; 2014
Latin America
~5%
Proactively realigning sales with changing market
Coal Markets Agenda
Demand
Supply
Sales
Summary
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Coal Markets Summary
17
• Good demand and stable growth
• Prices remain at unsustainable levels
• Production cuts are taking hold; Additional cuts continue to be announced
• USA production under most pressure
• Lower pricing environment impacts future projects
Steelmaking Coal Markets March 31, 2015 Réal Foley, Vice President, Coal Marketing
