Re: Weekly Coal Report

great summary. could you delete any mention of our positions in the future?
Thanks. Jeff

Jez Peters
01/29/2001 09:03 AM

To: Stuart Staley/LON/ECT@ECT, George McClellan/HOU/ECT@ECT, Mike
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Subject: Weekly Coal Report - 29th Jan

SUMMARY

Atlantic

Over the last week we have really seen the consequences of the wet and warm
winter in Europe with a total of some 1.7 million
tonnes being offered to us on the resell for delivery over the next couple of
months. As a consequence spot/Q2 prices are now
trading at $2 discount to replacement from South Africa ($40.75 FOB ARA
versus $42.75 replacement) - a concept which many are
struggling to get their head round. The Lion's share of the resell mkt is
South African which makes sense as the strong U.S. mkt has
taken what little slack there has been in the South American pipeline. In
truth, while the U.S. mkt has been steaming, only very limited
incremental tonnage from SAM has made it into the U.S. as the Utilities only
pay up for spot spot material. If the steep backwardisation
in the U.S. rolls forward there may remain opportunities to bury spot SAM
cargoes at high levels but one thing is for sure is that the
strong U.S domestic market will keep U.S. exports into Europe very low.

Pacific

Very few Australian cargoes have found their way to the fair shores of Europe
over the last few months and this has been a function of
the strong Pacific market at the back end of 2000 and indeed in part due to
the consolidation which has been going on, the latest
development to be Rio Tinto's acquirement of Peabody's asset's in Oz. We are
currently entering the period of negotiations between Oz
producers and the JSM's for pricing of their long-term contracts. It is not a
secret that the producer's plan to go for broke and are looking to
lock in prices above $30 FOB Newcastle - currently wud call the mkt $28.50.
JSM's are apparently holding tight citing world economic
slowdown. At $28 the oz producer is making some $13 a tonne, the chinese are
due to export a further 6 million mt this year and steel
production is forecast to be down some 10% year on year - while we may see
some activity at higher prices in the short-term I think it
will be difficult for the producers to realise the numbers which they are
talking longer term. China is also talking prices of $30 which is
$3/4 higher than last year but have some $3 frt advantage versus Newcastle.

Gameplan

We are currently a total of 2.4 million mt short ARA (1 million API2 / 1.4
million SECA) with the bulk being in back end of this year. We will
continue to sell the front end aggressively in the belief that the mkt has
some further downside from where we are today - the mkt has merely
sold off on rumour thus far but when these cargoes actually start arriving
unsold into Europe there shud be some additional pressure on prices
if the stock situation does not improve in ARA - currently a 13 day lineup in
Rotterdam. There are reports of Siberian type weather heading our
way which cud increase burn temporarily but I donot think this will have a
significant impact. We are busy looking for any opportunity to sell
out of our South African long as Glencore tries to prop the mkt up and will
then look to buy back our physical shorts into Europe from the
Armada of coal which is due to arrive. Psychology shud create downward
pressure along the whole forward curve and we will be looking to
buy in some our deferred short sub $30 RBCT equivalent. Meanwhile we are
working to sell 3-5 year agreements with several utilities while
the mkt loiters in the higher regions of the historical range. We are also
talking with several producers about securing longer term contracts
which will give us a good supply base to work from going forward. In the
Pacific we will look for an opportunity to cover our CLP short on the
nearby but will look to the fundamentals to do their work bfor covering
anything further forward.

Rgds
Jez