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Energy and commodity price benchmarking and market insights

Colombia: Atlantic basin pacesetter Argus Webinar

31 July 2013

Ross Allen

Molly Christian


• Argus in market data services

◦ Global market intelligence provider

• Market trends & fundamentals

◦ Colombian production and exports

◦ Quality

◦ Competing coals: Russia, South Africa, USA

• Methodological discussion

◦ Indexation in Colombia

◦ 2013 and beyond – What’s coming up

Agenda for today

Copyright © 2013 Argus Media Ltd. All rights reserved.


• Report prices globally for ◦ Gas

◦ Power

◦ NGL & LPG

◦ Emissions

◦ Coal and coke

◦ Refined products

◦ Crude

◦ Fertilizers

◦ Petrochemicals

• Nearly 500 staff globally

• Rapid growth in spot and term contract indexation, swap market indexation

Argus Media


Argus in market data services


illuminating the markets Copyright © 2013 Argus Media Ltd. All rights reserved.

• Reports include:

◦ Coal prices

◦ Freight rates

◦ Cross-commodity

comparisons

◦ Iron ore and coke

information

• Clear and robust

methodology

Coal, transport & ore


Indexation and benchmarks include:

Key coal indexes include:

• Argus/IHS McCloskey

Indexes: API 2; API 4;

API 5; API 6; API 8; API

10; and API C1

• Rail coal freight rates

• Physical indexation in

Central Appalachian,

PRB and Illinois basin

markets


• Key crude benchmarks:

◦ Argus Sour Crude Index

◦ Argus ESPO Blend

◦ Argus Dubai Crude

• Products benchmarks:

◦ Eurobob oxy (gasoline)

◦ German diesel

• LPG benchmarks:

◦ ANSI

◦ Argus cif ARA large

Full list available at Argusmedia.com

Colombian coal markets & fundamentals



• Competitive costs and more

favorable weather aiding

volumes but sour labor

relations have dented

tonnage in 2012 and 2013

• Thermal exports last year

were down by 5pc from 2011

because of strikes but 9.5pc

above the five-year average

Colombian steam coal exports rise in 2007-2012


0

1

2

3

4

5

6

7

8

9

2007 2008 2009 2010 2011 2012 2013

Source: SIMCO

mn mt/month


• Cerrejon (BHP Billiton, Xstrata, Anglo American) planning to raise output to 40mn mt/yr from 34.6mn mt in 2012

• Glencore’s Prodeco unit targeting 20mn mt in 2014 from 14.7mn mt last year ◦ Inaugurated Puerto Nuevo

terminal in May (initial loading capacity of 21mn mt/yr)

Major producers planning expansions

• Drummond had been

targeting more than 30mn

mt this year compared

with 26mn mt in 2012

ahead of strike, port

setbacks


Colombian steam output to reach 108mn mt in 2018, up 27pc from

last year, mines and energy minister Federico Renjifo says


• Colombian thermal exports in January-May down 47pc from same period last year (Deep Blue shipping agency)

• Cerrejon, Colombian Natural Resources and Drummond have all encountered strike or port disruptions this year

• Lower seaborne prices reflect softer demand: FOB Bolivar prompt 90-day prices off by 20pc from the start of 2013

Labor strife, lower prices cloud near-term outlook


Source: Deep Blue

0

2

4

6

8

Jan Mar May Jul Sep Nov Jan Mar May

mn mt/month


Thermal coal reserves in Cesar, Guajira, Cordoba


• 86pc of Colombia’s

exports from largest

miners

o Cerrejon (2010: 43pc)

o Drummond (30pc)

o Prodeco (13pc)

• Reflects significant

project capital needs

o Mines

o Railroads

o Terminals


Reserves have decent heat but levels vary


Producer: Typical NCV:

(kcal/kg) Sulphur: Terminal:

Cerrejon 5,906-5,933* < 1pc Puerto Bolivar

Drummond 6,017-6,350 < 1pc Puerto Drummond

Glencore 5,933-6,350 < 1pc Puerto Nuevo

Colombia Natural

Resources 5,294-5,739 < 1pc Rio Cordoba

Pacific Coal 6,239-6,739 < 1pc Carbosan

*Range of 5,628-6,000 kcal/kg

Source: Producers, US EIA

Colombian cost advantage


Colombian steam exports by destination in 2012, mn mt


Source: SIMCO

15.3

8.2

7.9

6.9

5.0

4.9

4.8

3.5

3.3

1.9

1.8

1.8

1.7

1.6

1.1

1.0

0.6

0.6

0.5

0.5

0.2

0.2

0.2

0.2

0.2

0.2

0.1

0.1

0 3 6 9 12 15 18

NetherlandsTurkeyOther

USSpainIsraelChileChina

PortugalSouth Korea

DenmarkBrazil

IrelandItaly

CanadaFrance

ArgentinaGuatemala

CroatiaGermanySlovenia

JapanCayman Islands

Dominican RepublicIndia

TaiwanBelgium

Venezuela


European delivered prices hit three-year lows


60

70

80

90

100

110

120

130

140

2010 2010 2011 2012 2013

$/mt • Europe’s economic

headwinds and high US,

Colombian exports are

pressuring prices

• Markets expected to stay

under pressure in the near

term despite favorable

economics of burning coal

versus natural gas


Arbitrage window shut for most US coals


US east coast<1pc sulphur

fob port 80.00

Capesize 11.00

Delivered 91.00

CIF ARA @ $76/mt

Prices are in $/mt for prompt 90 days, 6,000kcal

FOB US Gulf <1pc sulphur

fob port 81.00

Capesize 17.00

Delivered 97.00

FOB US Gulf 3pc typical

fob port 58.85

Capesize 17.00

Delivered 75.85


Russian coal also above index on delivered basis


Russia

fob Baltic port 80.00

Panamax 8.85

Delivered 88.85


CIF ARA @ $76/mt


Delivered South African coal closer to ARA levels


Richards Bay, South Africa

fob port 72.51

Capesize 8.20

Delivered 80.71 Prices are in $/mt for prompt 90 days, 6,000kcal

CIF ARA @ $76/mt


Colombia can comfortably price into Europe


US east coast

fob port 80.00

Capesize 11.00

Delivered 91.00

Russia

fob Baltic port 80.00

Panamax 8.85

Delivered 88.85

Richards Bay, South Africa

fob port 72.51

Capesize 8.20

Delivered 80.71

Puerto Bolivar

fob port 66.15

Capesize 10.60

Delivered 76.75


CIF ARA @ $76/mt


Asia-Pacific is a tougher target (cfr south China $85/mt)


Pitt Seam 13,000 Btu, 3.5lb SO2

Port delivered 94.96

Cape, Panamax 31, 39*

Delivered 126-134

Prices are in $/mt for prompt 90-day period, except Pitt Seam. *estimated seaborne rate

Puerto Bolivar (6,000kcal)

fob port 66.15

Capesize 26*

Delivered 92.15 Newcastle (6,000kcal)

fob port 77.02

Capesize 150k 9.20

Delivered 86.22

Colombia price assessment methodology



Argus/IHS McCloskey Coal Price Indexes


• Argus/IHS McCloskey provides coal prices and historical trend

data for the API indexes, which are the key price benchmarks

used in the international coal industry.

• Exchanges using the API indexes include CME and ICE.

• The Argus/IHS McCloskey coal indexes are used as the settlement

prices in 90% of the world's coal derivative contracts.

• Spot and historical data can be accessed in numerous ways,

including online and via FTP.

More information at: ArgusMcCloskeyCoal.com


Argus/IHS McCloskey Coal Price Indexes - Thermal


More information at: ArgusMcCloskeyCoal.com

• API 2 - the standard reference price benchmark for coal imported into northwest Europe. It is an average of the Argus cif ARA assessment and the IHS McCloskey NW Europe Steam Coal marker.

• API 4 - the benchmark price for coal exported out of South Africa's Richards Bay. The API 4 index is an average of the Argus fob Richards Bay assessment and the IHS McCloskey Richards Bay FOB marker.

• API 5 - an average of the Argus fob Newcastle 5500 assessment and the IHS McCloskey Australian 5,500 kcal NAR FOB marker.

• API 6 - an average of the Argus fob Newcastle assessment and the IHS McCloskey Newcastle FOB marker.

• API 8 - an average of the Argus cfr south China assessment and the IHS McCloskey/Xinhua Infolink South China CFR (5,500 kcal NAR) marker.

• API 10 - an average of the Argus fob Puerto Bolivar assessment and the IHS McCloskey Colombia FOB marker.


Argus/IHS McCloskey Coal Price Indexes – API 10


More information at: ArgusMcCloskeyCoal.com and ArgusMedia.com

API 10 averages the Argus fob Puerto Bolivar assessment

and the IHS McCloskey Colombia FOB marker.

Argus FOB Puerto Bolivar

Typical Reject

Heat: 6000 kcal/kg 5750 kcal/kg

Sulphur: <1pc 1pc

Lot size: 50,000 kt N/A

Delivery point: Puerto Bolivar N/A


Argus’ coal methodology is transaction based


• Argus has a two-stage

price identification

process:

◦ Volume weighted average

◦ Market survey

Full list methodology always at Argusmedia.com

• VWA maintains firm foundation in reported deals

• Survey process keeps check on leverage and validates

the VWA transactions

30 deals of equal volume at yields $101.67/mt

fob Colombia $100x10

fob Colombia $101x10

fob $104x10


Argus strives towards the highest possible standards in its business operations.

• Methodology ◦ Argus uses a market-appropriate methodology to assess prices in the markets it covers. Argus consults with the

range of participants involved in different markets and publishes methodologies for each price report on its website.

◦ Each methodology is reviewed regularly to ensure that it always meets the needs of market participants and is in line with industry practice. Argus seeks to reflect the way markets are traded, rather than impose its own view.

• Editorial Code of Conduct ◦ All Argus journalists operate according to a rigorous editorial code of conduct that aligns with best journalistic

practice, including the avoidance of conflicts of interest.

• Compliance and Ethics ◦ Argus operates a rigorous and transparent controls framework to govern its price reporting activities. This is

underpinned by its global compliance policy, which can be downloaded below, and which includes an ethics policy and a business continuity plan. The company’s Global Compliance Officer oversees the compliance framework, including a rolling program of internal audits to ensure compliance with stated methodologies and policies.

• Complaints ◦ Argus has a formal complaints’ handling procedure, which can be found on page 6 of the global compliance

policy.

Argus: How we work


Excerpted from: www.argusmedia.com/About-Argus/How-We-Work

Ross Allen, Vice President – Business Development

Molly Christian, Editor – Argus Coal Daily

Copyright notice

Copyright © 2013 Argus Media Ltd. All rights reserved. All intellectual property rights in this presentation and the information herein are the exclusive property of Argus and and/or its licensors and may only be used under licence

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Disclaimer

All data and other information presented (the “Data”) are provided on an “as is” basis. Argus makes no warranties, express or implied, as to the accuracy, adequacy, timeliness, or completeness of the Data or fitness for any

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