Weekly Coal Report

please get on distribution and put on web site. thanks. Jeff
----- Forwarded by Jeffrey A Shankman/HOU/ECT on 02/12/2001 12:56 PM -----

Jez Peters
02/12/2001 12:12 PM

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Subject: Weekly Coal Report

SUMMARY

ATLANTIC

Mixed signals coming from the market at present with Billiton approaching us
to buy FOB stem at RBCT for a cargo each Q2/Q3 and were active for the first
time in a while in the SECA market buying up 2nd half 2001 material.
Meanwhile there remains to be South African resell tonnage coming our way -
predominantly appearing by way of the Spanish utilities who continue to have
excellent hydro levels and ourability to source South African Call Options on
FOB RBCT level with strike of $32.50 seems to question the recent information
that Billitonsold tonnage at $33.25 equivalent into European consumers for
the rest of the year Furthermore for the first time this year we begin to see
Colombian resell material appearing on the market both on a CIF and FOB basis
- probably no coincidence that this comes at a time when some of the steam
seems to have come off the U.S. spot market. Overall the tone seems to be
firmer but with very few new fundamental inputs to fuel this but rather
producer sentiment After weeks of tentatively drifting south the SECA market
traded up a dollar along the whole curve last week. This was really a
consequence of a few looking to buy into a market void of sellers which was
itself is directly a function of peoples unwillingness to further sponsor a
market which has come down some $5 from it's high's. The spot market is now
trading at $40.50 Fob barge Rotterdam, 2nd half of the year at $40.25 and
then 2002 at $39.50.

PACIFIC

Despite the extensive coverage which the Far East seems to be attracting with
regards to economic slowdowns/weakness the Pacificmarket continues to be
tight. The JSM/Producers continue their annual negotiations, but expect to
see few conclusions from these in theshort term as the JSM's continue to
exercise all the options they have to keep the drip feed going and most have
clauses in their contractswhich allow them to carry on shipping material
despite any agreement until September time. Both KEPCO and Lafarge have come
out with tenders for the delivery of coal for prompt shipment - it is
definitely a sign of progress that we are being invited to bid but without
any length with which to play with, going short in front of Glencore and Rio
could be expensive - the plan will be to participate without winning the
business. The Chinese Annual Coal Fair took place over the last cuppla weeks
where contracts for 2001 are negotiated and various sectors lobbyfor their
allocation on infrastructure. The major takeaway's from the meeting were that
total production is estimated at 950 million mt for 2001with exports targeted
at 63 million mt - up 5 million mt from last year. Despite increased export
targets, the sentiment remains bullish with most producers asking between $29
and $31 representing a $3/$4 increase versus 2000 prices. Strong domestic
prices will limit any downside in the export market and while the government
is keen to keep pushing exports there is a general scepticism over the
ability of the rail to move the projected tonnage. We have signed a
Memorandum of Understanding with a producer based in Inner Mongolia (ZCIC)to
market upto 1 million mt per year into the export market - all going well
this will provide us with the necessary length to be able to target business
in the region more aggressively.

GAMEPLAN

We continue to try and take advantage of this mismatch between the origin
markets and the European market by selling out of origin lengthand using the
resell market to pick up tonnage to service our commitments at destination.
We are working several bits of long-term destinationbusiness in the Atlantic
which if successful will serve as a melting pot for any length we have
remaining in that basin and more. We will alsolook to sell into any further
rally in the destination SECA mkt. Despite fundamentals in Asia pointing to a
slowdown in demand the consolidation we are seeing in Australia will
certainly prevent any collapse in prices and short-term expect prices to head
higher than the $30 I wud call FOB Newcastle today. It will be very difficult
for us to get any ammunition for the near-term but we are looking at various
projects which will again give us access to coal further out in the curve and
at the same time are exploring any opportunity to own some optionality to
give us some protection against a continued squeeze further out in the curve.

Best Regards
Jez