Energy Argus Petroleum Coke

Copyright 2011 Argus Media LtdPage 1 of 19

www.argusmed ia .comEnergy Argus Petroleum CokePetroleum Coke Market Prices, News and Analysis 9 November 2011

Continued on page 2

Coke markets weaken, flurry of deals doneLed by the sharp downturn of fuel-grade petroleum coke prices at the key US Gulf coast producing center, all global coke prices weakened in October and buyers mainly in China found spot coke prices an attractive option com-pared with other fuels.

After dropping only slightly in September, high-sulphur, hard coke prices quoted by Argus dropped by $15 in October to an average of $64/mt fob US Gulf coast. Prices for 4.5pc sulphur fell $19.75/mt to an average of $75.25/mt fob US Gulf coast. As a result, the differential between medium- and high-sulphur coke narrowed to $11.25 in October from $16 in September.

Eight spot cargoes of high-sulphur, hard coke were reported to have traded on an fob US Gulf coast basis in October at $60/mt to $67/mt. The cargoes ranged in size from 50,000mt to 62,000mt and were to load in November and December. Most of the cargoes were destined for China.

Another deal for high-sulphur, hard coke was done substan-tially lower at $52.50/mt fob US Gulf coast for 50,000mt loading in November. The cargo was thought to be headed to Europe.

Coke Market Overview

In This Issue NCRA to replace coker in Kansas Page 6

US: Coke exports still up on year Page 8

Rio Tinto to spin off 13 aluminum assets Page 12

Dry bulk fleet growth at peak levels Page 13

Argus fuel-grade petroleum coke spot prices: October

Atlantic Basin $/mt

Fob US Gulf Coast40 HGI 70 HGI

Low High Midpoint Low High Midpoint4.5pc Sulphur 74.25 75.25 74.75 75.25 76.25 75.756.5pc Sulphur 63.00 64.00 63.50 64.00 65.00 64.50

Delivered Northwest Europe - ARA40 HGI 70 HGI


Delivered Spanish Mediterranean40 HGI 70 HGI


Delivered Brazil40 HGI 70 HGI


Pacific Basin $/mt

Fob US West Coast45 HGI

Low High Midpoint3.0pc Sulphur 112.00 115.00 113.504.5pc Sulphur 98.00 100.00 99.00

Cfr China45 HGI

Low High Midpoint3.0pc Sulphur 153.00 155.00 154.004.5pc Sulphur 139.00 141.00 140.00

Cfr India40 HGI 70 HGI


Coke and coal freight ratesEnd-Oct 4-week average

Supramax (45-50,000 dwt)

USGC to ARA 27.00 25.63Venezuela to ARA 25.00 24.13USGC to Mediterranean 27.00 25.88USGC to Brazil 23.00 22.50

Panamax (64-77,000 dwt) USWC to Japan 24.00 23.63

Handymax Coal (up to 60,000 dwt)

Puerto Bolivar to ARA 18.55 18.71Puerto Bolivar to USGC 10.00 10.13Puerto Bolivar to USEC 17.30 17.64

9 November 2011Energy Argus Petroleum Coke

Page 2 of 19 Copyright 2011 Argus Media Ltd

A coke cargo with sulphur below 6.5pc, but above 5pc, also traded on a cfr China basis at $128.30/mt for 62,000mt, loading in November or December. Freight for the voyage was thought to be around $55/mt.

Additionally, three cargoes of Venezuelan-spec, 4-4.5pc sulphur coke, traded in October between the low$70s/mt and the upper $70s/mt on a fob US Gulf coast basis.

While October was easily the most active spot market to date in 2011, some expect November and December to remain active as a result of renewed buying interest especially from China.

It was clear in October that sellers were offering Venezuelan petroleum coke at discounts to the Pace index. In some cases the discounts were reported as high as the Pace high -$8/mt. This is in stark contrast to contracts signed in the last two years at premiums as high as Pace high +17/mt for material from the four upgraders at the Jose complex.

Asian marketsA US Gulf coast producer, when asked if coke prices were

nearing a floor, said the rate of decline is starting to decrease, but that near-term prices will largely be determined by what Chinese buyers are willing to pay.

In China, prices of imported fuel-grade petroleum coke lost more ground in October as many end-users faced tight cash flows, but substantial volumes of coke were purchased by Chinese buyers. Septembers imports of fuel-grade coke at 251,900mt were almost double the 131,000mt imported a month earlier, and signs point to huge import levels in the final quarter of this year.

After imports of fuel-grade coke averaged 431,440mt in the first five months of this year, imports dropped to an average of 244,550mt from June through September. But despite the four-month downturn, China imported 3.14mn mt of coke in the first nine months of this year and is well on its way to breaking last years import record of 3.55mn mt of fuel-grade coke.

Spillover sentiment from lower thermal coal prices added to downward pressure to petroleum coke prices in October. And bearish signals from Chinas building sector caused sluggish aluminum sales, which added further downward pressure on domestic coke prices.

150

120

60

90

30

60

0Oct Dec Feb Apr Jun Aug Octp g

4.5pc 6.5pc

US Gulf Coast hard coke spot price $/mt

150

120

60

90

30

60

0Oct Dec Feb Apr Jun Aug Octp g

3.0pc 4.5pc

US West Coast hard coke spot price $/mt

120

8081 88 86 91 9180 80

100

120

80 78 75 77 76 73 7266

77 74 72 7279 79 77 80 80

67 63 62 5860

80

`

40

60

20Oct Dec Feb Apr Jun Aug Oct

4.5pc 6.5pc

Coke pc of coal delivered NW Europe pc

120

87 84 79 8391 88 90 93

8183 82 83100

120

84 79 79 83 81 75 7367

83 80 76 7480 82 79 80 83

7165 63 60

60

80

40

60


4.5pc 6.5pc

Coke pc of coal delivered Spanish Med pc


Coal to coke Btu comparisons

cif ARA Western Mediterranean Cinergy (Ohio barge)

$/mmBtu

pc of coal

CO2 adjusted

$/mmBtu

pc of coal

CO2 adjusted

$/mmBtu

pc of coal

SO2 adjusted

Coal 4.94 - 4.96 4.83 - 5.27 3.45 - 3.45

4.5pc Coke 3.25 66 3.74 3.25 67 3.74 2.90 84 2.90

6.5pc Coke 2.89 58 3.37 2.89 60 3.38 2.54 73 2.54



A 50,000mt cargo of 6pc sulphur coke from the US was due to arrive at Shandong in early November and was hearing offers at $133/mt CFR. Some spot cargoes of 5.5pc sulphur from the US were heard done at around $127/mt CFR.

An importer in east China sold some 3.0pc sulphur cargoes at an equivalent of $153/mt CFR.

No firm demand was heard by Chinese importers for cargoes beyond 2011. Market participants expect the cash flows to tight-en further at year-end when banks are expected to reduce loan exposure by calling back a significant number of corporate loans.

The market for coke exported from China is also weakening as demand falls from target markets such as India, Japan and the US.

Posted prices of high-sulphur petroleum coke at Sinopec Qingdao and Tianjin refineries are unchanged at $199/mt. But some actual deals were heard done at a large discount to that price. Sinopec is expected to adjust prices downwards in Novem-ber to ease its high stock levels.

Prices for imported petroleum coke in India slipped further in October with market activity interrupted by the nine-day

5.0

5.5

4 0

4.5

3.5

4.0

3.0Oct Dec Feb Apr Jun Aug Oct

Coal 4.5pc Coke

Delivered coke and coal in NW Europe $/mmBtu


12

16

4

8

0

4

-4Oct Dec Feb Apr Jun Aug Oct

Gasoline Heating oil

USGC LLS crude oil refinery margins $/bl

24

21

24

18

15


USGC-ARA USWC-Japan

US coke export freight $/mt

13

16

19

22

25


Richards Bay Coal USGC Coke

Coke and coal freight into NW Europe $/mt

Coal marketsEnd-Oct Oct ave. Oct ave.

$/mt $/mt $/mmBtu

cif ARA 6,000 kcal 119.93 117.69 4.94fob Richards Bay 108.60 110.64 4.65fob Newcastle 117.37 119.39 4.51cif Japan 6,700 kcal 135.77 137.92 5.19CSX 1pc Sulphur US Rail 83.50 83.57 3.03Big Sandy 1pc Sulphur US Barge 81.24 81.07 3.06FOB New Orleans11,500 Btu 5.0 lbs SO2/mmBtu 81.50 81.75 3.436,000 kcal 95.00 96.81 4.07FOB Hampton Roads12,000 Btu 112.50 113.06 4.756,000 kcal 106.00 106.06 4.45

Crude and refined products$/bl End-Oct Oct ave.

Maya US Gulf Coast 102.81 99.73ANS US West Coast 113.39 110.34WTI/Maya spread 9.62 13.33Brent/Dubai spread -3.47 -6.173pc Fuel Oil USGC 100.50 98.16Asphalt, Western Gulf Coast ($/st) 490.00 465.63USGC Refining Margin (3:2:1) 22.31 30.03

Emissions marketsEnd-Oct Oct ave.

US SO2 Allowances ($/st) 1.00 0.88US NOx Allowances ($/st) 10.00 10.00Argus European CO2 Index (/t CO2e) 10.18 10.35



Dussehra festival at the start of the month and the Diwali fes-tivities during the last week of October.

The lower prices did attract some buyers and spot purchases were heard to be transacted at around $122/mt for 6.5pc sulphur cargoes with freight from the US Gulf increasing to around $53/mt. But these purchases were modest, with building activity and demand from cement yet to pick up after the monsoon season.

Demand is expected to remain weak as the holiday mood con-tinues with the Eid festival during the first half of November.

The US exported 93,648mt of fuel-grade coke to India in August, and shipped 388,022mt during the first eight months of this year.

To keep pace with import prices and be competitive, domes-tic petroleum coke from Reliance is being sold at around $121/mt. Taking heed of the lackluster market sentiment, additional domestic petroleum coke capacity which had been expected to come onstream in the current quarter is now only expected to be offered in the next quarter.

Worries that Spanish petroleum coke may find its way to India in bigger quantities added to market expectations of weak-ening prices. Repsols Cartagena refinery, operated by Reficar, has plans to sell around 810,000 mt of petroleum coke annually to Indias Rain Commodities. While the major portion will be anode grade, fuel-grade petroleum coke is likely to be part of the deal, market participants said.

Coal, freightKey coke-related coal prices prices dipped in October. Deliv-

ered northwest Europe coal prices at $119.93/mt on 31 October were down from $121.07/mt a month earlier. On 8 November prices closed at $118.01/mt.

Coal fob Richards Bay, South Africa, dropped to $108.60/mt at the end of October, down 4.6pc from $113.78/mt on 30 September. The coal price on 8 November stood at $107.05.

Fob Newcastle, Australia, coal at $117.37/mt on 31 October was down from $121.85/mt at the end of September. And prices fell further to $116.16/mt on 8 November.

The arbitrage window for US coal sales to Europe remained closed late in October unless shippers had locked in below-


140

120

130

110

120

100PQ PQ+1 PQ+2 PQ+3 PY PY+1 PY+2

Oct-10 Oct-11

CIF ARA coal limplied coke forward curve $/mt

12

18

6

12

0

-12

-6

Oct Dec Feb Apr Jun Aug Oct

WTI/Maya spread $/bl

110

90

100

80

90

70PQ PQ+1 PQ+2 PY PY+1

Oct-10 Oct-11

USGC coal implied coke forward curve $/mt

100

90

100

80

90

70

80

70

60Jan Apr Jul Sep Dec

US refinery utilization five-year range pc

Clarksons coke freight rates $/mt60,000 mt (Panamax) $/mt 1-Nov 1-Oct 1-Sep

US Gulf Coastto European Continent 26.45 25.65 24.05to Spanish Mediterranean 25.40 24.60 23.05to Black Sea 29.65 28.65 26.75US West Coastto European Continent 25.45 25.27 23.50to Spanish Mediterranean 24.50 24.30 24.50to Japan 22.80 22.80 23.40



Petroleum coke price snapshot $/mt

Fob US Gulf Coast

40 HGI 70 HGI

4.5pc Sulphur 74.75 75.75

6.5pc Sulphur 63.50 64.50

Delivered Northwest Europe - ARA

40 HGI 70 HGI

4.5pc Sulphur 101.75 102.75

6.5pc Sulphur 90.50 91.50

Fob US West Coast

45 HGI

3.0pc Sulphur 113.50

4.5pc Sulphur 99.00

Delivered Brazil

40 HGI 70 HGI

4.5pc Sulphur 97.75 98.75

6.5pc Sulphur 86.50 87.50

Delivered Spanish Mediterranean

40 HGI 70 HGI

4.5pc Sulphur 101.75 102.75

6.5pc Sulphur 90.50 91.50

Cfr India

40 HGI 70 HGI

4.5pc Sulphur 132.00 134.00

6.5pc Sulphur 122.00 124.00

Cfr China

45 HGI



market transportation rates. Trading interest even slowed for US Gulf coast exports, which had been the more active US market.

Most US steam coal exports are being shipped under previ-ously signed contracts, with deal-making scarce for new deliv-eries in the next 90 days. But the current slowdown belies the overall strength in demand.

Ocean freight rates to move petroleum coke on panamax ves-sels from the US Gulf coast to the European continent, Span-ish Mediterranean and the Black Sea were up between 3.1pc and 3.5pc in October, according to shipping broker Clarksons. Rates from the US Gulf coast to the European continent stood at $26.45/mt on 1 November, up from $25.65/mt a month earlier.

Supramax freight rates to move coke from the US Gulf coast to ARA as quoted by Argus ended October at $27/mt, up from $22.50 earlier in the month. Rates from the Gulf coast to the Mediterranean also climbed to $27/mt at the end of October, from $23.50/mt in the first week of the month.

Some attributed the rise in October supramax freight rates to Chinas increased purchases of spot petroleum coke in the month, but statistics were not yet available.

Market newsConocoPhillips is set to bring the new 65,000 b/d coking unit

at its Wood River, Illinois, refinery on line at the end of this month. The coke will make its way down the Mississippi River


to Gulf coast terminals for export. It is unclear when the com-pany expects to ship the first cargo of its new coke production.

Venezuelas PdV reportedly issued another tender for a couple of medium-sulphur petroleum coke cargoes in October. Other details about the tender are unclear, but the last time PdV attempted to sell coke by tender, in September, it found the bids too high, according to market sources. Increased availability of Venezuelan coke is expected to further narrow the medium/high sulphur spread. The European spot market remained largely quiet in October, but at least one high sulphur, hard coke, cargo that was transacted in the month was said to headed that direc-tion. Discussions for 2012 supplies are said to be wrapping up with many of the end users in Euro/Med, and suppliers say volumes for 2012 are little changed from 2011. Most cement makers in Euro/Med are still experiencing poor demand for ce-ment, so demand for petroleum coke remains subdued.

As US producers endeavor to meet end-of-year inventory tar-gets for petroleum coke, juggling stocks at refineries and termi-nals, large volumes of mostly high sulphur coke could make their way into the spot market before year end. It is clear that China is buying high-sulphur coke for power generation and the cement industry, not merely medium-sulphur coke for the glass industry. And demand has jumped during the winter restocking period, a shipping broker said. Most readily agree that as goes China dur-ing the balance of 2011, so goes the direction of coke prices.



Coke Market News

crude capacity to 240,000 b/d from 110,000 b/d. Crude through-put will climb 16.3pc to 356,000 b/d from 306,000 b/d.

ConocoPhillips will transport the petroleum coke down the Mississippi River for export. It is unclear if the major has signed any supply contracts for the new coke output.

ConocoPhillips has reduced its overall refining capacity, most recently with the decision to idle and sell or close its 185,000 b/d refinery in Trainer, Pennsylvania.

Global refining utilization in the fourth quarter should be in the low-90pc range, Sheets said. Utilization in the third quarter was 92pc, according to the company.

NCRA to replace coker in KansasThe National Cooperative Refining Association (NCRA) will build a new coker at its 81,000 b/d refinery in McPherson, Kansas, to replace the existing coking unit, the company said late last month.

Conocos coker almost completedConocoPhillips could by mid-November complete startup work on the new coking unit at its 306,000 b/d Wood River, Illinois, refinery, the oil company said.

The 65,000 b/d coker is part of a $3.8bn expansion project that will increase total refining capacity by 50,000 b/d and let the refinery run heavier and lower-cost Canadian crude.

Construction was on track to finish in October, chief finan-cial officer Jeff Sheets told analysts in a call on 26 October. Sheets said project startup activities were continuing as planned, and were expected to be completed by mid-November. The expansion project was 98pc complete at the end of the second quarter (EAPC, 7 September, 2011, p1).

When the new unit is running, the refinerys coking capacity will jump to 83,000 b/d, with annual coke production projected at around 1.4mn mt. The coker was originally expected to start up by late 2010 (EAPC, February 12, 2009, p19).

The coking unit is part of an expansion that will increase

Essar Oil expects big rise in refining marginIndian private-sector refiner Essar Oil expects to achieve a significant increase in its gross refining margin as a result of an expansion project at its 280,000 b/d Vadinar refinery.

The first phase of the project which will lift the refin-erys capacity to 360,000 b/d is in its final leg. Most of the new expansion units and facilities have been mechanical-ly completed and were tied into the refinerys existing units during a 35-day shutdown in September and October.

Mechanical completion of the remaining units a 6mn mt/yr (feed) delayed coker unit, a vacuum gasoil hydro-treater and a sulphur recovery unit is expected by the end of the year (EAPC, 10 August, 2011, p7). Start-up of the ex-pansion units has already begun, and the refinery will ramp up to its increased capacity by the end of the first quarter of 2012.

A strong refining industry environment in Asia-Pacific helped Essar increase its gross refining margin to $7.22/bl in July-September from $6.49/bl in the same period last year, but the company expects a more sudden and decisive increase in margins when the additional capacity becomes fully available.

The complexity of the refinery is being lifted to 11.8

from 6.1 as part of the expansion project. This allows for the processing of a much higher percentage of heavy and ultra-heavy crudes, which are cheaper than light crudes, as well as the production of a higher-value product mix. The proportion of heavy and ultra-heavy crudes processed in July-September was 75pc, up from 64pc a year earlier. But Vadinar continued to optimize production of middle and light distillates despite running a heavier feedstock.

In August, Essar said it would reduce dependence on Iran for crude supplies as the Vadinar upgrade ramped up, taking more Latin American heavy crudes.

Essar has not given a figure for crude runs in the quarter, but said throughput at Vadinar fell to just over 265,000 b/d in April-September from 295,000 b/d a year earlier because of the 35-day shutdown.

The companys revenue was boosted by the higher refin-ing margin in July-September but it swung to a loss in the period because of foreign exchange losses. The firm lost 1.66bn Indian rupees ($33.7mn), compared with a profit of Rs1.3bn in the same period last year.

An optimization project, which will lift capacity at Vadi-nar further to 400,000 b/d, is 63pc complete and is on track to be finished by September 2012.



Coke Market News

NCRA said construction will start in January 2013, and the company plans to finish the $555mn project, described as the largest in NCRAs history, in August 2015.The NCRA board of directors put the coker project, which was in the planning stages, on hold in 2008. The world economic situation was cited as the reason for not going forward with the coking project at that time (EAPC, 12 February, 2009, p18).

NCRAs existing 20,000 b/d, three-drum coking unit at the McPherson refinery produces about 315,000st/yr of fuel-grade petroleum coke, according to carbon consultant Charlie Randall. NCRA removed a bottleneck from the coker in 2006 by adding a coker charge tank and handling terminal, which allowed rates to increased about 33pc in March 2007 by decreasing drum cycle time from 24 hours to 18 hours, Randall said.

In addition to upgrading technology, the new coker will al-low the refinery to run a greater variety of crude oils, company president Jim Loving said.

Cemex chief delivers gloomy forecastWorldwide petroleum coke prices will continue tumbling from early 2011 highs, pressured by new supply and anemic de-mand, company officials for cement manufacturer Cemex said on a third-quarter 2011 earnings conference call 26 October.

Petroleum coke is the lead fuel for the companys cement kilns, followed closely by coal. Cheaper primary fuel costs are expected to boost corporate earnings in the final quarter of 2011.

Western petroleum coke markets in the US and Europe have been falling since April after reaching historical peaks in March, according to Cemex executive vice president Fernando Gonzalez. Compared with September 2010, prices have fallen about 30pc, he said.

Spot prices for petroleum coke in the US Gulf coincide with the estimate and are headed into the mid $70/mt range this fall from March and April highs of about $112/mt for 6.5pc sulphur, 40 HGI cargos, according to Argus assessments.

Cemex expects the downward cycle to continue, with new coker units coming on line contributing to oversupply, and exacerbated by limited growth in consumption.

Consumption rates will be flat on the year in 2012 at the same time that 6mn mt of new supply is coming on line, Gonza-lez said. The incremental supply should start hitting the market by the end of 2011. These dynamics will lead to further price erosion in the fourth quarter and into next year, he said.

The companys loss widened in the third quarter to $822mn from a loss of $89mn during the same time a year ago. Cemex attributed much of the loss to currency fluctuations as the Mexi-can peso and the euro lost strength against the US dollar.

Marathon Detroit upgrade on track for 2012 Marathon Petroleums upgrades at its 100,000 b/d re-finery in Detroit to enable the facility to run more heavy crude feedstock and boost capacity by 15pc are on track to be done in the second half of 2012, the independent refiner told analysts at the beginning of November.

The $2.2bn Detroit heavy oil upgrading project was 73pc complete as of 30 September, chief executive officer Gary Heminger said while discussing third-quarter results. In April Marathon had completed about 40pc of the project (EAPC, 4 May, 2011, p6).

Running its refineries at full tilt in the crude-flush US midcontinent helped capture third-quarter margins more than three times greater than in the same quarter of last year, the company said.

High crack spreads, a wide split between US benchmark crude WTI and other light sweet crudes, along with an increased influx of Canadian heavy crude favored the mid-

continent refiner. Marathon reported an overall margin of $13.18/bl for the period, up from $3.75/bl a year earlier.

Marathon also plans to run more Eagle Ford crude, though it was more guarded about plans there than with op-portunities in Ohios unconventional Utica shale play.

Heminger was similarly cryptic about other possible expansions in Texas City, where BP is selling its 475,000 b/d refinery. He answered a question regarding possible advantag-es of having neighboring facilities there by referring to BPs Carson, California, refinery, which is also for sale. Heminger said Marathon is not interested in going to the west coast for a single stage or a single asset, adding that it will continue to look at those facilities and see what might fit, if anything.

Marathon projected crude runs of 1.2mn b/d in the next quarter, down from 1.37mn b/d in the third quarter. Profit-ability, rather than turnarounds or other bottlenecks, had dictated such runs, the company said.



Coke Market News

US: Coke exports still up on yearThe US exported 20.91mn mt of petroleum coke in the first eight months of 2011, up 4.1pc from 20.08mn/mt in the corresponding period a year earlier, according to the US Energy Information Administration (EIA).

Exports in August of this year at 2.6mn mt were also up slightly from 20.58mn mt in August 2010.

Monthly exports from January through August of 2011 exceeded shipments in the same timeframe in 2010 only four times, but exports in March and July of this year were the two highest volumes on record. The US exported 2.95mn mt in March and 2.92mn mt of coke in July, which was up 22.2pc from exports of 4.81mn mt in the same two months in 2010.

After shipping 2.44mn mt of petroleum coke to Mexico in the first eight months of this year, the US is on pace to export 3.66mn mt to the country in 2011. Exports to Mexico from January through August were up 26.4pc from 1.93mn mt in the same period a year earlier.

US coke exports to Japan at 2.42mn mt year-to-date through August were down 9.7pc from 2.68mn mt in the first eight months of 2010. Japan and Turkey were the only two destinations on the top 10 list of countries where US coke is shipped that saw annual declines in exports. But exports to Japan at 383,303mt in August were higher than to any other country.

Coke exports to Brazil totaled 1.8mn mt in the first eight months of 2011, up 4.7pc from 1.72mn mt in the correspond-ing year-earlier period.

But exports to the country in August at 146,098mt hit the lowest level since March 2010.

Shipments of US coke to China from January through

August 2011 at 1.67mn mt were up 16.8pc from the same period a year earlier.

Spain pushed ahead of Italy in August as the fifth-largest recipient of US coke from January through August, as exports in the eight-month span totaled 1.63mn mt 3.2pc higher than the same period in 2010. US coke exports to Spain at 217,786 in August easily surpassed the 95,463mt shipped to Italy.

Rounding out the sixth through tenth largest destinations for US coke in the first eight months of 2011 were: Italy, 1.57mn mt, up 17.2pc from 2010; Canada, 1.27mn mt, up 17.6pc from 2010; Turkey, 1.22mn mt, down 10.9pc from 2010; Morocco, 775,862mt, up 12.7pc from 2010; and the Netherlands, 437,387mt, up 47.9pc from 2010.

US shipments to India from January through August 2011 at 388,022mt were up 53pc from 253,539mt in the corre-sponding period of 2010, pushing India to number 12 on the list. Exports to India in August at 93,648mt were the second-highest in 2011, trailing only July.

Falling prices attract buying interestEuropean buying interest for petroleum coke has in-creased over the past month in response to falling prices, but some traders are still waiting to see where the price settles before committing to deals.

A European-based trader at a recent industry conference in Madrid said his firm was looking to implement buying strategies for petroleum coke as the price is more competi-tive now.

He said the coke coming from Spain is all 5.5-6.5pc sulphur, and that there is not a great deal of medium-sulphur material available in Europe.

He said he is seeing producers in Asia and South America producing low-sulphur coke and exporting it because of the demand for this higher quality coke.

There have been a few inquiries from European utilities, but Turkish cement traders seem to be quite active in the market at the moment, a UK-based producer said. He added that liquidity is expected to stall in December and he guessed most traders are waiting until January to complete deals.

Activity is also expected to pick up in the Asian market in the next few months.

Around 100,000mt/month of coke is being imported into India, an Indian steel producer said. This is likely to increase going into the first quarter of 2012 and throughout next year if the price keeps falling, he said.

T rkeMorocco

Netherlands

Aug-10

ItalyCanadaTurkey

Aug-11

BrazilChinaSpain

MexicoJapanBrazil

0 110 220 330 440 550

'000 mt

Top destinations for US petroleum coke exports



Coke Market News

Delek may increase asphalt runs in cokerIndependent refiner Delek US said it is evaluating a project that would ferry more asphalt from its 80,000 b/d El Dorado, Kansas, plant to an underutilized coker at its Tyler, Texas, facility.

In October, the 58,000 b/d Tyler refinery ran 1,000 b/d of El Dorado-produced asphalt through its coker, and is look-ing at a vacuum tower bottoms project that would increase volumes to 2,000 b/d, company chief financial officer Mark Cox said on 3 November in a third-quarter earnings report.

Running more asphalt through the coker would result in the processing of more light products, Cox said.

Delek typically produces about 80,000 st/yr of petroleum coke at its Tyler refinery.

Doubling asphalt resid to 2,000 b/d in a small, 6,500 b/d coker would likely change the quality of the petroleum coke from anode grade to fuel grade, carbon consultant Charlie Randall said.

The refiner said it has the solution to secure more relatively cheap, West Texas Intermediate (WTI)-linked oil for its refineries even as producers are maneuvering to lock

in higher prices for that crude but the company will not provide details about how it plans to do that.

Delek will add another 25,000 b/d of WTI-linked oil to the crude slate at its refinery in El Dorado within the next 18 months, the company said.

That facility ran an average of 25,000 b/d in WTI-linked crude furing the third quarter, including a mix of Arkansas and west Texas crudes.

Chief executive Uzi Yemen said on 3 November he expects Delek to continue to supply its Tyler refinery with cheaper light, sweet crude.

China: September coke imports reboundChina in September imported 251,900mt of uncalcined pe-troleum coke, after imports in August at 131,000mt hit the lowest level in 11 months. Septembers imports were up sharply 197pc from only 84,700mt in September 2010.

China, through September of this year, is on pace to import a record 4.19mn mt of uncalcined petroleum coke in 2011 after importing a record 3.55mn mt in 2010.

Cement demand drop in Spain, Portugal hits CimporPortuguese cement producer Cimpor has said it is shifting focus to emerging markets in Brazil, India and Mozambique to offset massive declines in sales in Spain and Portugal.

Cimpors third-quarter profit fell by a third as weaken-ing economies in Portugal and Spain weighed on cement sales, the company said in its financial results this week.

Cimpor is the worlds eighth-largest cement producer and petroleum coke is considered one of the key fuels for production, in addition to coal.

The company has bought around 1.5mn mt of coke this year and 1mn mt of coal.

The Brazilian market remains the main growth driver for Cimpor whose revenue grew 8pc over the third quarter, the company said.

The countrys market is being driven by higher ce-ment volumes and increasing concrete contributions in the build-up to the football World Cup and Olympic Games to be held in 2014 and 2016, respectively. Cimpor plans to increase its cement production by 50pc in the country.

But Portugal and Spain have had a drop in cement and clinker sales in 2011, especially in the third quarter, Cimpor said.

Demand contracted in Portugal by 12pc while in Spain it fell 14pc over the three months. Exports from the region were down by 45pc despite the cement price edging higher by 2pc.

Both Mozambique and India reported surprisingly strong results for Cimpor.

Third-quarter cement demand increased 20pc in Mozam-bique while cement prices moved up 11pc. Cimpors cement plant in Mozambique is being converted to handle thermal coal and petroleum coke, the company said.

Emerging demand was also seen from new entrants in the Indian market, which had eroded recent price rises in the country. Chinese and Turkish operations also performed strongly over the quarter, Cimpor said.

Cimpors net income fell to 48.6mn ($67mn) in the third quarter, while revenue declined 0.3pc from a year earlier to 591.5mn.



In the first nine months of 2011 China imported 3.14mn mt of uncalcined petroleum coke, which was up 29.8pc from 2.42mn mt in the corresponding period of 2010.

Given strong spot sales to China in October, the countrys imports are expected to surge in the final two months of 2011.

Chinas exports of calcined petroleum coke surged to a single-month high of 193,300mt in September. And exports in the first nine months of 2011 established a new annual record of 1.06mn mt eclipsing the previous record of 938,319mt exported in 2006.

China is well on its way to setting a record for uncalcined coke exports. From January through September China ex-ported 1.24mn mt of uncalcined coke, and is on pace to export 1.65mn mt in 2011 which would break the record of 1.43mn mt set in 2006.

Exports of uncalcined coke in September at 140,600mt were up 63.5pc from 86,000mt in the same month in 2010.

US coke consumption up in JulyConsumption of petroleum coke by the US electric power and industrial sectors at 538,000st in July 2011 was tied with March for the highest level of consumption since January, but was still down 8.6pc from the same period a year earlier, according to the Energy Information Admin-istration (EIA).

But since July of 2009 the two sectors combined to burn more than 538,000st of coke in a single month only twice.

Total coke consumption by the electric power and indus-trial sectors in the first seven months of 2011 at 3.34mn st was down 6.4pc from 3.57mn st in the corresponding period in 2010.

The EIA does not include coke consumption by cement plants in its figures.

Electric utilities in July burned 343,000st of petroleum coke, which was the most since January and slightly higher than July 2010.

From January through July of this year electric utilities consumed 1.92mn st of coke, or 2.5pc down from the same timeframe a year earlier.

Independent power producers (IPPs) burned 118,000st of coke in July, which was the second-highest monthly volume of 2011, but was down 29.3pc from July 2010. IPPs in the first seven months of this year consumed 779,000st of pe-troleum coke, 18.8pc lower than the 959,000st burned in the corresponding period in 2010.

Coke Market News

100

55.242.2

61.9

23 150

00

0.023.1

0

-50

-70.5-100

US Others Total

Month pc change Year pc change

Change in Japans fuel grade petroleum coke imports

Japans fuel grade petroleum coke imports 000 mt

Sep 11 Aug 11 Sep 10 Jan-Sep 11 Jan-Sep 10

US 523 337 323 3,172 3,122Canada 71 46 157 410 385Taiwan 0 0 0 0 35Others 13 44 13 228 179Total 607 427 493 3,810 3,721Note: Numbers are rounded. Source: Ministry of Finance

From January through July the industrial sector consumed 581,000st of coke, which was up 3,000st from the same time-frame in the year-earlier period.

Stocks of petroleum coke held by the electric power sec-tor dropped to 540,000st at the end of July, which was down sharply 48.6pc from 1.05mn st in July 2010. Stocks at the end of June stood at 562,000st.

Electric utilities were holding 411,000st of petroleum coke at the end of July, the lowest level of 2011, and down 55pc from 907,000st in the same month a year earlier.

Stocks held by IPPs at the end of July at 129,000st were down from 130,000st a month earlier, and were down 13.4pc from July 2010.

Japans coke imports rise in SeptemberJapans imports of fuel grade petroleum coke rose 23.1pc in September to 606,725mt from the same period of 2010, according to the countrys customs data.

Japanese coke consumers including steel, cement and petro-chemical makers increased purchases, as output at each sector climbed in August from the corresponding month in 2010 which result in lower stocks levels.



Coke Market News

Coker operations

VenezuelaPdV, PetroAnzoateguiupgrader, Anzoategui statePdV completely shut down the upgrader on 21 September for major maintenance, Venezuelas state-owned oil company said. The company did not say how long the upgrader would remain out of service.

ChinaSinopec, Shanghai(Pudongs Gaoqiao area)A fire, believed to have be-gun in a coking unit, swept through the refinery on 23 September. The extent of damage is unclear.

US Gulf coastValero, Corpus Christi, TexasValero began a three-week turna-round at its 200,000 b/d refinery around 21 October. The facility is performing maintenance on a coker and a crude unit..

US Gulf coastValero, St Charles, LouisianaValero will take a coker and crude unit down in February for 10 weeks.

US west coastValero, Wilmington, CaliforniaValero will begin four weeks of scheduled maintenance on a coker and crude unit in January.

US west coastConocoPhillips, Rodeo, CaliforniaA fire in a coke pit on the morning of 3 November at ConocoPhillips 120,000 b/d refinery did not slow plant operations, according to a spokeswoman for a local authority. The fire was put out by refinery personnel and did not involve any process or plant shutdowns.

Rocky MountainsSinclair Oil, Sinclair, WyomingSinclairs 60,000 b/d refinery is run-ning at reduced rates after suffering separate fires in a crude unit and vacuum unit early in September. The extent of the damage is unclear.

US MidcontinentCVR Energy, Coffeyville, KansasThe facility will perform maintenance on a coker, crude unit, a vacuum unit and a hydrotreater at its 110,000 b/d refinery starting in March 2012. Work is expected to last about one month.

CaribbeanHovensa, St Croix, US Virgin IslandsHovensa began two to four weeks of planned maintenance on a coker, a crude unit and a reformer in October.

SpainRepsol-YPF, PuertollanoThe company will conduct coker maintenance at its 135,000 b/d refinery for 39 days during the fourth quarter of 2011.

Most cargoes that arrived in September traded in August.Imports from the US in September jumped by 62.1pc to

522,606mt from the year-earlier period. The rise more than off-set a drop in Canadian supply to 71,303mt, down 54.6pc from September 2010.

No tons were delivered from Taiwan in September, com-

pared with imports of 13,196mt from the country the previous September.

Japans petroleum coke import costs in September rose to an average of $210/mt, up 19.2pc from $176/mt a year earlier. The price hike largely reflected higher import costs for competing steam coal over the period.



Worldscale Association lifts bunker assessments The bunker fuel prices that will be incorporated in the cal-culation of 2012 Worldscale flat rates have increased by 30-38pc over 2011, the Worldscale Association has announced.

Bunker prices used in the annual freight flat rates are based on an independent assessment of average worldwide prices for 1 October 2010 to 30 September 2011.

The assessed cost of 380cst bunker fuel has increased by 30pc from $467.48/mt to $606.56/mt.

Low sulfur 0.1pct sulfur bunker fuel costs have increased by 38pc from $665.49/mt to $915.77/mt in 2012.

The cost of 1pc sulfur fuel has increased by 33pc from $485.09/mt in 2011 to $642.74/mt next year.

Coke Industry News

Rio Tinto to spin off 13 aluminum assetsGlobal metals and mining company Rio Tinto will spin off 13 aluminum production assets worldwide, including baux-ite mines and smelters, the company said on 16 October.

Rio Tintos plan follows a strategic review and will help the company streamline its aluminum business. A new company, Pacific Aluminium, will be created out of Rio Tintos interest in several Australian properties and a smelting station in New Zealand, effective from 16 October.

A second group of assets in France, Germany, the UK, and the US, have been marked for divestiture but will continue under Rio Tinto management while the company evaluates dif-ferent sales opportunities, the company said.

Aluminum smelters are among the largest users of high-grade calcinable petroleum coke and also use coal to fire their plants.

Wall Street analysts said the decision is in line with recent management commentary. The company has not disclosed the sale price it will seek for any of the affected properties. A Deutsche Bank research note valued the properties at about $8bn in total, and others said streamlining would allow Rio Tintos aluminum group to focus on more-profitable Canadian operations.

Other than Canada, Rio Tintos remaining aluminum opera-tions will be the Yarwun and Queensland Alumina refineries and the Weipa bauxite mine, all in Australia.

The strength of our balance sheet means that we can choose the most opportune method and timing to divest these assets, which may not occur until the economic climate improves, Rio Tinto chief executive Tom Albanese said.

Pacific Aluminium will be made up of the New Zealand Alu-minium Smelters plant and five assets in Australia: the Gove bauxite mine and alumina refinery, Boyne Smelters and nearby Gladstone Power Station, the Tomago smelter and the Bell Bay smelter.

In France and Germany, Rio Tinto will look to spin off three specialty alumina plants and the Gardanne refinery. The Lyne-mouth smelter and associated power station in the UK could face closure, Rio Tinto said.

The Sebree smelter in the US state of Kentucky is also under evaluation for a potential sale.

This move is a further significant step towards achiev-ing our performance targets in the aluminum product group, Albanese said.

PdV delays Jamaican refinery expansionVenezuelas state-owned energy company PdV has delayed by four years plans for a $1.3bn expansion of Jamaicas sole Petrojam refinery, which would increase the islands capacity by 25,000 b/d to total 55,000 b/d, Jamaican energy ministry officials told Argus.

Petrojam is 49pc owned by PdV with Jamaican counterpart PCJ holding the rest. The expansion is not scheduled in PdVs near-term plans for investments in refineries, the officials said. The Venezuelans are concentrating on new and expanded refineries in Cuba, Central and South America, China and Syria, one Jamaican official said.

The Petrojam expansion was originally scheduled to begin in 2009 but was postponed by then-Jamaican prime minister Bruce Golding because of ballooning costs (EAPC, 6 January, 1010, p6).

The latest projection is for a 2015 start, with completion 2018, according to an energy ministry official. But this de-pends on agreement on the financial details.

Those include concluding a new ownership structure for the 47-year-old refinery that will allow PdV and PCJ to obtain financing, officials said. Venezuela and Jamaica are negotiating a transfer of shares that would lift PdVs interest above 51pc. This will allow financing for the expansion to be found without a government guarantee that Jamaica cannot provide, they said.



Coke Industry News

This change is part of a Jamaican government agreement with the International Monetary Fund (IMF) to divest several state assets as one of the conditions for IMF credits of $1.3bn, the IMF said. As PdV makes new equity investments in the refinery project, the Jamaican governments equity participa-tion will continue to be reduced accordingly, the international agency said.

Petrojam currently processes Venezuelan crude imported under Caracas PetroCaribe energy program to produce LPG, gasoline, kerosene, jet fuel, diesel, heavy fuel oil and asphalt. The expansion would allow the production of a wider range of refined products and provide petroleum coke for a 120MW power station to be managed by the islands biggest power producer, JPSCo.

Sinoway calcining plant progressingSinoway said the petroleum coke calcination plant being built in Weifang, Shandong province, is progressing well. Site preparation has commenced and foundations have been laid.

The plant is scheduled to start the first heat-up steps in April 2012, with marketable grades of calcined petroleum coke being produced by August.

Officially known as Sinoway Carbon, the new plant is owned 100pc by Hong Kong-based Sinoway Group. Sinoway explored the feasibility of working with its unidentified Indian partner on the project, but then found it more commercially viable not to do so. The two companies, as a result, chose to stop going forward as joint venture partners for the plant.

Sinoway vice president Alan Chui said the new plant in China will set the standard for calciners around the world. The plant will supply calcined petroleum coke for markets in Aus-tralia, the Middle East and other regions.

The plant is structured to be a major regional or even global project, strategically based in China, Chui said. We are cur-rently discussing potential involvement with some other promi-nent partners in the region, Chui said.

Sinoway is one of Chinas largest exporters of green petro-leum coke for the aluminum industry. It acts as one of the major traders dealing with exports of Chinese coke to the Middle East, east Asia and North America.

Dry bulk fleet growth at peak levelsDry bulk fleet growth has reached peak levels and will remain elevated for the next 12 months, Sophocles Zoullas, chief executive officer of Eagle Bulk Shipping, said.

Valero seeks heavy crude partner for ArubaUS independent refiner Valero is considering strategic alternatives for its 280,000 b/d refinery in Aruba, includ-ing the possibility of taking on a partner to help improve heavy crude processing at the facility, as it focuses on feedstock production for US Gulf coast refineries, com-pany officials said on 1 November.

Valero has restarted a process of looking for strategic alternatives for Aruba, the company told analysts while discussing quarterly financial results.

Projects to reduce costs at the site are under way, Klesse said without elaborating on what those projects are, how much they cost or when they would be complete.

Valero chief Bill Klesse said the refinery would generate feedstocks for its conversion operations along the US Gulf coast, where the company recently bulked up capacity with the purchase of a 135,000 b/d refinery in Meraux, Louisiana, from Murphy Oil.

Valero is still considering where it will do hydrotreat-ing a process that removes sulfur impurities from process streams, according to Klesse. But Aruba is better suited for Valeros purposes to act as the front-end of a refinery, he said.

The facts are, were still very interested in finding a partner or some relationship that allows us to process very sour, heavy crude or high tan crude, which the refinery can do, Klesse said.

Valero has sought such a partner for more than a year. A narrowing price differential between heavy and light crude in 2009 pushed Valero to temporarily shutter the facility in July of that year.

The rewidening of that spread led the company to reopen the refinery late last year albeit at reduced run rates but Valero said at the time it would be a more valuable facility to a partner with heavy crude reserves.



Coke Industry News

Fleet supply grew rapidly this year, up 14.3pc from the same period a year ago. Capesizes have represented 50pc of those new deliveries, Zoullas said in discussing the companys third-quarter earnings.

But new orders are down 80pc from 2010 and the current orderbook stands at 39pc of the fleet compared with the 51pc of the fleet that has prevailed since 2008.

Zoullas said Chinas transportation ministry has pledged to curtail newbulding output to bring fleet supply back into balance.

The massive volumes of new vessels entering the fleet this year pressured dry bulk rates in the third quarter as the market struggles to soak up the excess supply. Although Capesize rates rallied in August, Zoullas viewed that as representing a disloca-tion in fleet distribution rather than strong demand overcoming supply.

Supramax rates have outpaced other vessel types, averag-ing $14,500/d this year and staying above break-even costs of $11,000/d for Eagle Bulk. Panamax rates have averaged $13,700/d and Capesizes $13,300/d.

Zoullas said the dry bulk market outlook is mixed. Japanese reconstruction efforts following Marchs earthquake and tsu-nami could start to benefit trade in coal, iron ore, steel prod-ucts and lumber, although so far there have not been signs of increased Japanese demand.

Indias iron ore production ban is expected to be lifted by December, which Zoullas hopes could lead to a full resumption in exports to 2010 levels. The loss of that supply has affected Supramax trade this year.

A weak US corn crop is expected for the 2011-2012 season, which will lead to a reduction in seaborne supplies, but that will be offset by production from the former Soviet Union or Latin America, where grain is in storage.

China raises tax on coking coal salesChina raised the resource tax on coking coal from 1 No-vember in a move that could hit earnings of coal produc-ers.

The Chinese government said on 10 October that it would in-crease the sales tax on coking coal to 8-20 yuan/mt ($1.25-3.15/mt) from the current Yn0.3-5/mt.

But coking coal will continue to be taxed on volume, unlike oil and gas that will as of next month be taxed based on value. The tax on other types of coal including thermal coal will re-main at Yn0.3-5/mt.

The higher tax is likely to affect profit margins at major Chinese coal producers such as Shenhua Energy, Yanzhou Coal and China Coal.

But the new tariff will work out to be much lower than market expectations of a 3-5pc tax based on value. Coking coal is selling at Yn1,980/mt in north China, meaning a Yn20/mt tax would only be around 1pc of sales value.

The move to increase the tax is motivated by the scarcity of resources and is not an attempt by local governments to collect more revenue, analysts said.

The tax will benefit local governments, rather than be col-lected by Beijing. The decision to increase the tax could also reflect confidence on the governments part that inflation is under control.

The new tax is an extension of a pilot program implemented in 12 western Chinese provinces last year.

Plans to implement a resource tax nationwide have been postponed twice in recent years because of inflationary pressures in 2007 and concerns over the impact of the global economic downturn in 2008.

Petrobras would veto sale of refinery stakeBrazilian state-controlled oil company Petrobras would veto the possible sale of Venezuelan state-owned oil company PdVs 40pc stake in the 230,000 b/d Abreu e Lima refinery that is under construction, a Petrobras official said at the end of October.

Petrobras downstream director Paulo Roberto da Costa was responding to China Development Banks recent agreement to provide guarantees for 75pc of PdVs costs for the refinery in the northeastern Brazilian state of Per-nambuco, enabling the company to obtain financing with

Brazils BNDES development bank. Becauase of a lack of adequate financial guarantees, PdV has been forced to request a series of extensions from Petrobras in recent months.

Petrobras has forged ahead on its own with the project, which is scheduled to come on stream in 2013.

Petrobras and PdV have a long record of aborted deals. For instance, Petrobras pulled out of a preliminary agree-ment to develop a slice of Venezuelas Orinoco heavy oil belt in conjunction with PdV in 2008.



Coke Industry News

Refiners contend with low marginsRefiners will have to learn to adapt to extended periods of low profitability and high price volatility, oil industry experts predict.

Refining margins have plunged from the highs of pre-eco-nomic crisis levels in 2008 and are unlikely to recover soon, amid persistent economic uncertainty and refining capacity growth, said presenters at the Downstream Asia section of the Singapore International Energy Week

Addition of distillates production capacity in particular, including jet fuel and diesel, is unlikely to slow until after 2016 at least, said Tan Koon Tee, a senior adviser at consultancy Mc-Kinsey. Around 1.9mn b/d of distillates capacity will be added globally each year from 2012 to 2014, while another 2.1mn b/d will be added in 2015, Tan said. The continual capacity addition

will likely prolong the downturn in refinery margins that the industry faces, Tan said.

High price volatility has also made an already difficult busi-ness environment more challenging, said Wijnand Moonen, a director at UK-based standards assessor Lloyds Register Group. Refiners will have to learn to operate profitably at low rates of 50-60pc. At the same time, they must be ready to ramp up run rates when demand rebounds, Moonen suggested. This will require refinery process engineers to challenge the conven-tional view that a refinery typically has to run at a minimum 80-90pc, Moonen said.

Refineries are also considering fuller integration with the downstream sectors to combat an environment of low refining margins, said Bhawana Suphavilai, president of Thailands PTT Energy Solutions. She cited the examples of Indian private-sector refiner Reliance Industries and PTT Global Chemical,

Kinder Morgan to ramp up coal handling capacityKinder Morgan is significantly expanding its terminal capacity, largely in response to strong export demand which drove up third-quarter coal volumes for the com-pany by 23pc from last year, chief executive Rich Kinder said on 19 October.

Total coal volumes handled by the US midstream operator rose to 10.39mn st in the third quarter, up more than 1.9mn st from the year-ago quarter, Kinder Morgan spokesman Joe Hollier told Argus.

Kinder said the company remains on track to spend more than $500mn over the next couple of years to expand coal-handling facilities, primarily for the export market.

It looks like we are going to hit that number very squarely, and maybe even do a little better than we thought, he said.

He provided a partial breakdown of the spending plans, saying the company expected to enter into additional con-tracts in the fourth quarter which are likely to result in over $200mn of additional capital expenditure on coal handling facilities.

He did not provide details of the pending contracts, but said much of the growth in the companys terminals business is being led by higher export coal volumes at Pier IX in Virginia and at our bulk facilities in Houston.

He also said Kinder Morgan and partner American Elec-tric Power had already agreed to invest $111mn to expand

and upgrade the International Marine Terminal (IMT) in Louisiana to handle more export and domestic-bound coal.

Earlier this month, Kinder Morgan entered into a long-term agreement with Progress Energy Florida to handle up to 4mn st/yr at IMT, where the generator will lease space for its domestic coal purchases.

The agreement at the terminal south of New Orleans, on the Mississippi River, takes effect in 2013 for 10 years. But there is an option to extend it for up to 20 years. Progress has said this will give it more flexibility in fuel sourcing because barge deliveries from Central Appalachia and the Illinois basin can be stored at the terminal. After that they can be shipped across the Gulf of Mexico, when needed, to Progress Crystal River power plant in Florida.

Earlier this year, Kinder Morgan signed a separate agreement with Massey Energy, now part of Alpha Natural Resources, to handle a minimum of 4mn st/yr at IMT. It also agreed to handle 2.2mn st/yr for an unidentified large Colorado producer at its Houston terminal, where it started receiving coal in June.

These deals, and plans to acquire new coal export facili-ties, should bolster Kinder Morgans terminals business one of five business segments. The company is poised to become the nations fourth-largest energy company and the largest midstream company after announcing that it plans to pay $21bn and take on $17bn in debt to buy rival El Paso.



Coke Industry News

which both have refining capacities integrated with downstream petrochemicals production.

PTT Global Chemical was formed late last month after the merger of PTT Chemical (PTTCH) and PTT Aromatics and Re-fining. The new entity will have a refining capacity of 228,000 b/d and a petrochemicals production capacity of 22,630 mt/yr. The merger will save state-controlled oil company PTT at least $40mn-48mn a year, said a PTTCH report earlier this year.

China coal imports hit record highTotal Chinese coal imports hit an all-time high of 19.11mn mt in September, as winter restocking took place earlier than expected, bringing year-to-date total imports to 124mn mt, according to customs data.

Chinese utilities had begun stockpiling coal ahead of a scheduled 20-day maintenance on the Daqin railway, which links the coal-producing hub of Datong to Qinhuangdao port.

Septembers total coal imports comprise 3.26mn mt of anthracite, 3.89mn mt of coking coal, 6.87mn mt of non-coking bituminous coal and 5.09mn mt of other coal.

Non-coking bituminous coal imports from South Africa stood at 1.62mn mt or roughly 11 capesize vessels in Septem-ber, up from 1.16mn mt in August. Before August, the last time such product from South African had surpassed the 1mn t mark was in November last year.

Australian imports of non-coking bituminous material stood at 1.95mn mt, up from Augusts 1.67mn mt.

China also imported 470,000mt or about three capesize ves-sels of such coal from Colombia in September, marking the first time in nine months that Colombian material was priced into the country.

The record imports were largely attributed to sellers lower-ing coal prices to sell into China because of weak demand in the rest of the region. Everything is trading to a cfr China netback because they are the only ones buying, a Singapore-based trader said.

But high stockpiles at domestic plants, rising international freight costs and a grim economic outlook have curbed Chinese interest in imported coal. Chinese buyers also failed to return to the market in force after the 1-7 October Golden Week holiday, prompting talk among market participants that the Chinese peak winter buying period may be over.

Argus Coal TransportationArgus Coal TransportationBuying the coal is less than half the job.

www.argusmed ia .comwww.argusmedia.com

NORTH AMERICAN TRANSPORTATION NEWS & ANALYSIS Volume 30, 1, 4 January 2011

www.argusmedia.com Argus Media Ltd 2011

Executive briefing

Eastern US railroads will see stronger export coal

demand this year from international buyers seek-ing alternatives to flooded-out Australian product,

ahead of US domestic steam demand strengthening

later in the year as utility stockpiles continue to fall.

Physical coal markets strong at end of 2010

Mississippi utility challenges NS coal rates

STB takes main stage for 2011 regulatory debates

International markets to pull on US coals in 2011

STB 2009 Waybill sample coal rates

Continued on page 2

Exports hot into 2011Eastern US railroads enter 2011 with significant coal export growth potential as heavy rains and floods back-log shipments out of competing regions, but at home US railroads will continue to see shale gas pressure rail rates and demand for coal.

Norfolk Southern (NS) and CSX showed flexibility on rates to facilitate thermal coal exports late last year, but with international coal prices into Europe spiking to $130/metric tonne, US exporters are having an easier time making the economics work into Europe.

The capacity is still there: Kinder Morgans Pier IX finished at less than 7mn short tons shipped to domestic and export destinations in 2010, well short of its 10.5mn st/yr capacity; and NS Lamberts Point at approximately 16.6mn st for the year has room to grow to 18mn st but even further to 40mn st if NS adds shifts at the terminal. Dominion Ter-minal Associates is running full out, finishing at 14mn st for export and domestic coal movements in 2010.

THIS WEEK: EASTERN FOCUS

NEXT WEEK: WESTERN FOCUS

Source: AAR

-24,000

-16,000

-8,000

0

8,000

16,000

15 21 27 33 39 45 51

Week

Eastern coal originations, current over year-ago

Eastern US rail rates $/stJanuary rates Rate Change Pc change

Central Appalachia to:

East Coast Export Terminals 33.25 0.00 0.0%

Carolinas 30.00 0.00 0.0%

Cinergy 17.90 0.15 0.8%

Florida 30.65 -0.15 -0.5%

New York 24.15 0.00 0.0%

Southern 25.80 0.00 0.0%

TVA 23.55 0.00 0.0%

Pittsburgh Seam:

Florida 33.00 -0.25 -0.8%

New York 22.05 0.00 0.0%

East Coast Export Terminals 30.50 -0.50 -1.6%

Illinois Basin:

Cinergy 13.20 0.00 0.0%

Illinois Basin 11.35 0.00 0.0%

Eastern US rail rates plus fuel surcharges $/stEffective month of Feb 2011 Current Month Prior Month Pc change

Central Appalachia to:

East Coast export terminals 34.47 34.35 +0.3%

Carolinas 31.22 31.10 +0.4%

Cinergy 18.69 18.47 +1.2%

Florida 34.00 33.84 +0.5%

New York 25.72 25.57 +0.6%

Southern 28.24 28.01 +0.8%

TVA 26.06 25.83 +0.9%

Pitt Seam to:

Florida 36.66 36.56 +0.3%

New York 23.51 23.38 +0.6%

East Coast export terminals 31.41 31.83 -1.3%

Illinois Basin to:

Cinergy 14.11 14.03 +0.6%

Illinois Basin 11.62 11.60 +0.2%

Note: Based on CSX fuel surcharge; Est. 105st/car.

Coal Transportation

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Energy Market Overview

Coal MarketsConcerns about Europes financial health and moderat-ing economic activity in China pushed global steam coal markets lower in October.

The declines were particularly sharp for Atlantic basin markets.

High coal inventories at European terminals and struggles on the part of EU leaders to form a concrete plan for ad-dressing the regions debt woes together reduced delivered coal prices at the Amsterdam-Rotterdam-Antwerp (ARA) hub.

Coal CIF ARA within 90 days averaged $117.69/mt in October, down 4.6pc from $123.39/mt on average in Sep-tember.

Prices also slipped at the Richards Bay coal terminal in South Africa, the shipping point for coal heading to Europe and Asia.

The API 4 index for coal FOB Richards Bay averaged $110.68/mt last month, falling 4.2pc from $115.49/mt in September.

Signs of less-robust economic expansion in China and a spillover of the bearish market sentiment in Europe dragged on Asia-Pacific coal prices as well. South China steam coal fell to an average $116.50 CFR last month from $117.04/mt in September.

In Australia, API 6 prices at Newcastle meanwhile fell to $118.79/mt on average from $122.04/mt a month earlier.

US domestic prices were mixed. Prompt-quarter Powder River basin 8,800 Btu/lb coal averaged higher while more export-exposed Central Appalachian coal with 12,500 Btu/lb and 1.6lb SO2/mmBtu shed around 50/short ton at $75.83/st FOB mine.

Crude MarketsOutright crude oil prices were relatively stable for a sec-ond consecutive month, gaining just 82/bl from Septem-ber to reach an average of $86.43/bl during October.

Crude prices edged higher on the back of signs that Europe was trying to take measures to prevent a recession as a result of debt issues. But gains were limited as production increased out of Libya, Nigeria and the North Sea during the month just as European refiners went into their seasonal maintenance period.

The sweet/sour spread in the US widened by $1.45/bl on average from just under $3/bl in September to around $4.35/bl in October as Light Louisiana Sweet (LLS) crude contin-ued to strengthen.

At the same time, poor refining margins for some of the heavier grades weighed on their values. LLS firmed as sup-plies of lighter grades diminished following the end of the release of more than 30mn bl of light sweet crude oil from the Strategic Petroleum Reserve.

The spread between sweet and sour grades in Europe nar-rowed by 45/bl from around $2.85/bl in September to close to $2.40/bl in October.

Poor naphtha and gasoline margins were pressuring lighter grades at a time when Libyan production of those crudes was also seen increasing.

Meanwhile, heavy Russian Urals found support from strong refining margins and a transatlantic arbitrage in which volumes left the region during the month.

The west African sweet/sour spread narrowed sharply, moving in about $2/bl from an average of close to $6.10/bl in September to just more than $4.05/bl during October. The spread narrowed as demand for sour Angolan grades

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remained healthy out of Asia, where a tight fuel oil market and Japanese utility demand for direct-burning crude sup-ported values for the heavier grades. Light Nigerian crude found healthy demand out of India but this was countered by relatively poor demand from the US.

US Clean Product Markets

US clean products prices weakened, opening arbitrage op-portunities to South America and Europe.

The Gulf coast remained well-supplied with gasoline and diesel, as ongoing allocations on the Colonial Pipeline kept prompt supplies in place instead of moving to the east coast. Diesel shipments to Europe were steady out of the Gulf coast, while the Gulf coast and west coast exported finished gasoline to Mexico.

Europe exported finished and unfinished gasoline to the east coast, which continued to face a shrinking refining complex with the pending closure of another refinery, ConocoPhillips plant at Trainer, Pennsylvania, as well as pending closures of Sunocos Philadelphia and Marcus Hook refineries.

US Fuel Oil MarketsHigh-sulphur fuel oil margins at the Gulf coast weakened, after hitting a more than three-month high relative to sour crude in mid-October.

Atlantic coast 0.3pc sulphur high-pour values have been at a premium to 0.3pc sulphur low-pour prices since mid-August, in contrast to the more typical spread that has high-pour at a

discount to low-pour. The spread between Atlantic coast 1pc sulphur fuel oil and Gulf coast 3pc fuel oil flattened during the month, erasing a typical premium for the lower-sulphur qualities.

Spot activity in the Atlantic coast fuel oil market remained subdued amid limited buying interest as a result of thin end-user consumption.

The arrival of cooler weather did little to stimulate the usage of fuel oil commercially or by electric utilities.

Activity in the Gulf coast high-sulphur market increased as the month went on, as traders acquired tons to move to Singa-pore and Latin America.

EU Emissions MarketsThe EU emissions trading scheme (ETS) allowance mar-ket posted further losses in October, as the market stayed closely aligned with the equities market.

The December 2011 allowance contract weakened over the month, with a 3.76pc decrease from the end of September to 24 October. Prices started the month at 10.89/mt CO2 equivalent (CO2e), but fell to 10.48/mt CO2e by 24 October.

The clean-dark spread widened over the month. The German calendar 2012 clean-dark spread reached 14.01/MWh by mid-month, its highest since November 2009.

The increasing profit margin for burning coal has been a bullish factor for the allowance market. But it has been out-weighed by many bearish factors, especially the grim macro-economic outlook for the EU.

Faltering confidence in a solution to the eurozone debt crisis substantially weighed on markets, as EU summits spent time in formulating a comprehensive rescue plan. But the EU 17 ap-proved a package to solve Europes debt crisis on 26 October.

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US Emissions MarketsTrade in the Cross-State Air Pollution Rule markets was light through the month, after the US Environmental Pro-tection Agency (EPA) proposed changes that would increase the allowance budgets for several states.

The first trades for vintage 2012 group 2 SO2 allowances were reported early in the month. Prices dipped to $600/mt before recovering to close the month at $900/mt.


No trades were reported for vintage 2012 group 1 SO2 al-lowances, but prices followed group 2 lower early in the month before climbing back to end at $900/mt.

Activity in the Cross-State Air Pollution Rule ozone season NOx market picked up through the month, with vintage 2012 trading as high as $2,250/mt on 5 October. The vintage was last reported to trade at $1,700/mt on 25 October.

Vintage 2012 cross-state annual NOx prices lost $500/mt in subdued trading to reach $1,900/mt by 25 October.

Argus is the publisher of Argus Coal Daily and Argus Coal Daily International, the accepted benchmarks for trade in the US and international markets for coal, and Argus Air Daily, the index for sulphur allowance trading. Argus publishes numerous price reports and analytical newsletters, and is widely used as an index for trade in crude oil, refined products, and LPG.

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