1、 DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be awa
2、re that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.18 April 2019 Americas/United States Equity Research Diversified Metals&Mining US Metals&Mining Research
3、 Analysts Curt Woodworth,CFA 212 325 5117 curt.woodworthcredit- Jonathan Chang 212 325 2656 jung-yung.changcredit- SECTOR REVIEW NEWC Back to$90/t and China New Center Of Gravity for Coking=Sharply Higher Mid-Cycle In this report we update our fundamental views on seaborne thermal and metallurgical
4、coal.We remain very bullish on coking coal equities,which we view as among the best value across the mining landscape.Newcastle prices are bouncing back and coking coal structural support factors(CS center of gravity thesis)remain underappreciated by the market.European natural gas and Asia LNG valu
5、es have collapsed over the past four months driven by a confluence of factors and as a result Newcastle thermal prices have receded from peak price levels of$100-110/tonne in late 2018 to more mid-cycle levels of$90/tonne,although spot trades at one point reached$70-75/t a few weeks ago.Clearly,the
6、rise of global LNG is negatively impacting coal to gas switching dynamics in Europe and Asia to some degree;however,we caution investors not to become structurally bearish.The forward gas and coal curves suggest rebalancing occurs in the coming months and CS remains confident in our$85/tonne Newcast
7、le price forecast for 2020.The Newcastle forward curve is above$90/tonne from July-19 though May-20 and the UK gas curve is in steep contango.Peabody has come under pressure from the sharp fall in Newcastle prices and with prices recovering,now is an optimal time to consider the compelling value BTU
8、 offers investors.Also,note Peabody is already well hedged for Newcastle 6,000 for 2019(3mt open).We continue to see structural factors supporting above mid-cycle coking coal values over the medium term owing to exhausted US swing supply,very limited new greenfield LV HCC mines,and sharply escalatin
9、g supply side challenges in China.Grade depletion of low sulfur HCC and unstoppable environmental momentum(land preservation,water management)in China imply much higher through cycle prices for metallurgical coal in our view.LV HCC spot prices have not been below$150/t since 3Q-16 and just 9%of the
10、time has been below$160/t since Sept 2016.China Now Sets the Coking Price A Good Thing:The equity market should now be convinced that China supply curves now set the price,no longer swing CAPP supplies.The index is now based off almost entirely Chinese spot trades and the empirical data suggests Chi
11、na steps into the market near$175-180/tonne and backs off in the$205-210/tonne level.US Exports Up 20-25mt from 2016 Actual:US flexed up exports by 20mt since 2016 and demand has easily absorbed this volume.India has been a solid upside surprise in the market,offsetting some of the volatile buying p
12、atterns of China in 2018.18 April 2019 US Metals&Mining 2 Coal Universe Valuation Figure 1:Credit Suisse Coal Comp Sheet Source:FactSet,Credit Suisse estimates Figure 2:2019e EV/EBITDA Figure 3:2019e EBITDA Margin Source:FactSet,Credit Suisse estimates Source:FactSet,Credit Suisse estimates Figure 4
13、:2019e FCF Yield Figure 5:2019e Net Leverage Source:FactSet,Credit Suisse estimates Source:FactSet,Credit Suisse estimates EV/EBITDAEBITDA MarginFCF YieldNet LevDiv YieldTickerCompanyRatingMkt CapEV2019e2020e2019e2020e2019e2020e2019e2019eCoal Pure Play MinersTECK.B-CA Teck ResourcesOP14,31717,1854.7
14、x4.7x39%38%5%13%0.8x1%BTUPeabody EnergyOP3,0583,4993.3x3.3x0%0%23%21%0.0 x0%WHC-AUWhitehaven CoalOP3,0873,3664.4x5.7x42%37%18%9%0.1x10%CRN-AUCoronado GlobalOP2,0271,9172.4x3.3x32%26%25%17%-0.1x21%HCCWarrior Met CoalOP1,5841,8303.6x3.6x40%37%21%17%0.5x0%ARCHArch Coal-1,5651,4563.4x3.9x19%17%15%7%-0.4
15、x2%Mean4,2734,8753.6x4.1x29%26%18%14%0.2x6%Conglomerates&Diversified MinersAAL-GBAnglo AmericanN39,63144,4674.5x4.9x35%32%8%7%0.2x4%GLEN-GBGlencoreOP61,39390,1265.9x5.5x7%7%10%12%2.0 x5%RIO-GBRio TintoN74,989103,1025.2x5.7x48%45%8%7%0.2x6%S32-AUSouth32OP12,69811,8484.8x5.0 x32%31%11%11%-0.3x5%Mean47
16、,17862,3865.1x5.3x30%29%9%9%0.5x5%MLP Comparables and Small-Cap Coal MinersARLPAlliance Resource Prtnrs-2,3892,8643.9x4.2x34%32%-0.4x12%CEIXCONSOL Energy-9291,6754.3x4.4x26%26%14%15%1.0 x-HNRGHallador Energy-1523144.3x4.4x22%22%-METCRamaco ResourcesOP2322353.0 x3.0 x26%27%14%14%-0.1x0%Mean9251,2723.
17、9x4.0 x27%27%14%14%0.4x6%Overall Mean15,57520,2774.1x4.4x29%27%14%12%0.3x5%5.9x4.7x4.5x4.4x3.6x3.4x3.3x2.4x0.0 x2.0 x4.0 x6.0 x8.0 xGlencoreTeck ResourcesAnglo AmericanWhitehaven CoalWarrior Met CoalArch CoalPeabody EnergyCoronado Global2019e EV/EBITDA42%40%39%35%32%19%7%0%0%10%20%30%40%50%Whitehave
18、n CoalWarrior Met CoalTeck ResourcesAnglo AmericanCoronado GlobalArch CoalGlencorePeabody Energy2019e EBITDA Margin25%23%21%18%15%10%8%5%0%5%10%15%20%25%30%Coronado GlobalPeabody EnergyWarrior Met CoalWhitehaven CoalArch CoalGlencoreAnglo AmericanTeck Resources2019e FCF Yield2.00.80.50.20.10.0-0.1-0
19、.4-1.0-0.50.00.51.01.52.02.5GlencoreTeck ResourcesWarrior Met CoalAnglo AmericanWhitehaven CoalPeabody EnergyCoronado GlobalArch Coal2019e Net Leverage Ratio 18 April 2019 US Metals&Mining 3 Seaborne Thermal Outlook Newcastle Thermal Prices near Bottom and Forward Gas/Coal Curve Warrant Peabody Long
20、 Trade A confluence of factors has caused the sharpest decline in thermal coal pricing seen since the GFC and at one point Newcastle prices hit$70/t on globalCOAL for May delivery.However,prices have recovered quickly to$90/tonne and the forward curve remains above$86/tonne through end of 2020.Note
21、CS remains confident in our 2020 Newcastle 6000 price forecast of$85/tonne.Importantly,China has stepped back into the market for high ash/low Kcal Australia and Indonesia thermal specs,which interestingly have been flat to up since the meltdown in European gas and API 2/5.Figure 6:Long Awaiting Rer
22、ating of Seaborne Thermal Market has Arrived as LNG Alters Parity Dynamics$/tonne Source:Bloomberg,Platts.The sharp decline in thermal coal prices was driven primarily by the collapse in Asia LNG prices and European gas prices,which drove higher coal to gas switching.The dynamic was compounded by ve
23、ry weak shoulder season demand and record higher coal stocks at ARA of 8mt.Prices have set a near-term bottom in our view and as summer coal burn improves and gas rebalances,spot prices should recover.After hitting a low of$80/tonne April 3rd,the June forward has rallied back to$88/tonne.The forward
24、 curve for both gas and Newcastle are now in steep contango with NEWC at$90/tonne for 2H-19 and UK gas forward at$6.00/mmbtu by year end.In our view,the bearish trade based on correlation to Newcastle 6000 is over.Furthermore,we note that Indonesian lower CV values actually rose in March and lower C
25、V Newcastle 5500 has been generally flat at$58-60/tonne.We forecast global markets will likely rebalance over the coming months and note the forward curves for Newcastle trade at$90/t for August and September.20406080100120Jan-17Apr-17Jul-17Oct-17Jan-18Apr-18Jul-18Oct-18Jan-19Apr-19NEWC 6000API 2Chi
26、na 5500Indo 4200NEWC 5500 18 April 2019 US Metals&Mining 4 Figure 7:Newcastle Curve$85-90/t thru 2020 Figure 8:UK Gas Curve Shifts Lower in Front$/tonne Lb Source:Bloomberg.Source:Bloomberg.Fast&Furious Collapse in Global LNG Markets The collapse in the European gas market has been fast and furious
27、with prices near LNG import parity at$4.00/mmbtu.Warm weather in Europe,weak shoulder season demand,and surplus LNG from Asia have caused European gas and Asian LNG markets to fall by 40-50%in three months with Japan LNG off by 60%since 2H-18.The LNG spot price to Japan is nearing the thermal coal p
28、rice as seen in the figure below while LNG baseload supplies in Japan are usually contracted at higher prices;McCloskey notes some Japanese utilities switched at least one of their cargos to LNG.Figure 9:LNG&Newcastle Prices in Japan(1 month swaps)with Recent globalCOAL Trades Figure 10:Newcastle De
29、livered Price&JKM Swap LNG Price Source:Credit Suisse estimates,McCloskey,Bloomberg Source:Credit Suisse estimates,McCloskey,Bloomberg 80859095100105110Apr-19Jul-19Oct-19Jan-20Apr-20Jul-20Oct-20NEWC 6000 Curve-SPOTNEWC 6000 Curve-OCT 1835404550556065707580Apr-19Oct-19Apr-20Oct-20Apr-21Oct-21UK NAT G
30、AS Curve-SPOTUK NAT GAS Curve-OCT 18345678910Jan-1Jan-15Jan-29Feb-12Feb-26Mar-12Mar-26Pricing($/mmbtu)Newc swap-CFR JapanJKM swap LNG priceRecent globalCOAL trades2345678910Jan-1Jan-15Jan-29Feb-12Feb-26Mar-12Mar-26Pricing($/mmbtu)Newcastle Delivered Coal PriceJKM swap LNG price 18 April 2019 US Meta
31、ls&Mining 5 The Japan-Korea Marker(JKM)fell by 60%from October as the Permian Basin is continually adding to supply.The LNG spot price delivered to Japan is approaching the thermal coal price on the same basis(Figure 8).Note that Japan is largely contracted for LNG baseload supplies at higher levels
32、,but McCloskey reported an Australian trader commenting:Clearly,if you look at JKM,things have changed.You have some Japanese utilities switching coal burn to gas burn now.Recently,at least one utility has switched one of their cargoes to LNG,so instead of buying a coal ship,they have sorted out som
33、e gas.”Figure 11:LNG&Newcastle Pricing in Japan(Swaps/Trades)Since May 2017$/mmbtu Source:Credit Suisse estimates,McCloskey,Bloomberg Glencore Set 2019 Benchmark at$94.75/tonne Importantly,Glencore and Tohoku agreed in late March to settle negotiation for April-May 2019 benchmark contract pricing at
34、$94.75/t with Glencore hurrying to conclude negotiations.Note potential downside risk in high CV Australian supply with delays in receiving permits and the commissioning of Mt.Pleasants processing plant.April 1 in South Korea also means a lowered tax on LNG by as much as 74%and a raised tax on therm
35、al coal by 27%as the government aims to reduce air pollution per Platts.Note that Glencore actually controls even more through its trading arm buying the production of other Hunter Valley miners.These companies exhibited pricing power over the JKT buyers,which saw contracts settled at high prices.Fi
36、gure 12:Futures Market for May 2019 Settlement$/tonne Source:McCloskey.2468101214 May-17 Aug-17 Nov-17 Feb-18 May-18 Aug-18 Nov-18 Feb-19Pricing($/mmbtu)Newc delivered coal priceJKM swap LNG priceJapan LNG import priceRecent globalCOAL tradesMarketTodayYesterdayChangeLocationBasisNewcastle($/t)88.50
37、88.100.40FOB Australia6,000 kc NARAPI 4($/t)73.7972.641.15FOB South 6,000 kc NARAPI 5($/t)59.0058.250.75FOB Australia5,500 kc NARM42($/t)37.9737.630.34FOB Indonesia4,200 kc GARZCE*(RMB/t)622.40620.601.80CFR China5,500 kc NARAPI 2($/t)65.1063.002.10CFR ARA5,500 kc GAR*Ex 13%VATEurope is not the marke
38、t for Newcastle coal,but there is a cascade of follow-on effects that makes its way to the Pacific as we will note below.CS commodity team has been bullish on thermal coal as being resilient at$95/t in 2019,in part from the supply position of the Glencore/Yancoal duopoly,which controls half of Hunte
39、r Valley coal supply.18 April 2019 US Metals&Mining 6 Figure 13:Newcastle 2020 Curve Off$13/tonne Figure 14:Europe API 2 Curve Down$18/tonne$/tonne$/tonne Source:Bloomberg.Source:Bloomberg.China Still Supportive for Lower CV Markets The overall sentiment on Chinese thermal coal is generally bearish
40、right now as domestic supply appears set to recover while demand remains static.At the recent Coaltrans conference in Shanghai this week,the head of China National Coal Association forecast flat demand in 2019 while Noble forecast Australian thermal imports to fall by 10-20mt.The port restrictions a
41、re clearly having some impact on the market currently.While the thermal markets have come under substantial downward pressure,the pain has been entirely felt by lower ash products.Lower kc/higher ash thermal coals such as Indonesia(4200 spec)and Australia 5500 have been generally flat or up modestly
42、.Figure 15:Newcastle 6000/5500 k/cal Sell Off Appears to be Correcting$/tonne Source:Platts.808590951001051102H-192020Spot Curve6 Month Prior305070901102H-192020Spot Curve6 Month Prior-100-90-80-70-60-50-40-30-20-100405060708090100110120130Jan-17May-17Sep-17Jan-18May-18Sep-18Jan-19NEWC 5500 Disc($/m
43、t)Newcastle-6000 K/cal ($/mt)Newcastle-5500 K/cal ($/mt)18 April 2019 US Metals&Mining 7 China Buying Australian 5,500kc High Ash Again Australian high-ash 5,500kc coal has found a price floor at around$59/t.Chinese IPPs have started to buy May contracts at$57-$58/t.It is not yet clear whether they
44、are taking a risk on the imports because its too cheap to ignore,or they have been given the heads-up by authorities that the informal restrictions may be lifted in May.With this uncertainty,producers remain cautious about Chinese demand,as there remains a risk that importers may default on contract
45、s if they misjudged,leaving distressed cargoes on the water.However,we note that the Newcastle 6000 spec coal is not sold into China,so whether they buy or ban Australian coal does not greatly affect sales of the 6000kc grades.Also,for the grades that China buys,the prospect is looking better as evi
46、dent in the price performance of lower CV Australian and Indonesia coals.Also,other factors have been in play as well with Chinese thermal production starting to recover from weather and March safety inspections and Chinese port clearance delays(up to 60 days have been reported)also have hurt sentim
47、ent.Figure 16:Chinese Thermal Prices Resilient in Face of Global Meltdown RMB/tonne Source:Company data,Credit Suisse estimates China Seaborne Demand at Risk in the Long Run Seaborne thermal is not only under pressure from coal to gas switching,but also Chinas efforts to modernize its coal mines and
48、 shift away from coal based electricity generation.A major coal conference held recently in Shanghai noted that 980 million tonnes of thermal coal demand and 260mt of coking coal were traded on a seaborne basis in 2018,with China accounting for 23%of the total.MySteel reported that total capacity of
49、 Chinese coal mines under operation increased to 3.53bn tonnes at year end 2018,up slightly from the previous year.Clearly,as China domestic supply situation evolves and perhaps more critically rail access,modest percentage change can create more significant imbalances in the seaborne markets.Thus C
50、hina import data will be critical to watch this year and the near-term data sets are bearish but also clearly being impacted by port clearance problems,seemingly directed at Australia.400450500550600650700750800Apr-17Sep-17Jan-18Jun-18Nov-18Mar-19China Qinhuangdao Port(5500 kcal/kg)18 April 2019 US