Deutsche Bank
Markets Research
Australasia
Australia
M&M - Diversified
Resources
Industry
Global Coal Sector
Date
31 August 2017
Industry Update
Dialing up thermal coal prices
Raising near term seaborne thermal 10-15% and long run to US$65/t
________________________________________________________________________________________________________________
Deutsche Bank AG/Sydney
This research has been prepared in association with PT Deutsche Verdhana Sekuritas Indonesia. The opinions contained
in this report are those of PT Deutsche Verdhana Sekuritas Indonesia.
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware 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. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.
Paul Young
Research Analyst
(+61) 2 8258-2587
paul-d.young@db
Michael Hsueh
Research Analyst
(+44) 20 754-78015
michael.hsueh@db
James Kan
Research Analyst
(+852 )2203 6146
james.kan@db
Janeman Latul
PT Deutsche Verdhana Sekuritas Indonesia
Research Analyst
(+62) 21 2964 4569
janeman.latul@db
Liam Fitzpatrick
Research Analyst
(+44) 207 541-3233
liam.fitzpatrick@db
Matthew Frydman
Research Analyst
(+61) 2 8258-2607
matthew.frydman@db
Key Changes
Company Target Price Rating
S32.AX 2.60 to 2.75(AUD) -
WHC.AX 2.60 to 3.60(AUD) -
AAL.L 1,000.00 to
1,080.00(GBP)
-
Source: Deutsche Bank
Top picks
BHP Billiton (BHP.AX),AUD27.38 Buy
China Shenhua Energy
(1088.HK),HKD20.10
Buy
China Coal Energy (1898.HK),HKD3.97 Buy
Source: Deutsche Bank
After recently upgrading our Chinese thermal coal price forecast, we are raising
our seaborne forecasts for 2018 and 2019 by +10-15%. At a Qinhuangdao
5,500 kcal/kg price of RMB600/580/t in 2018/19, we now expect Newcastle
FOB averaging US$81/78/t and Richards Bay FOB averaging US$78/75/t. We
see China's net imports returning to near 2013 highs and now expect a slower
supply response from Indonesia on the crackdown on illegal mining. Largest
NPV upgrades to our coal coverage have been to WHC (+35% to A$3.60/sh)
and AAL (+10% to GBP10.44/sh). Our top global picks (BUY) are Shenhua and
China Coal. Shenhua offers consistent 15% ROAE and 18%-plus FCF yields.
Supply restrictions in China and Indonesia supporting seaborne prices
Indonesian thermal coal exports have fallen by 55Mt since peaking in 2013 at
424mt. Around 40Mt was due to reduced production from illegal small-scale
miners with the suspension of coal transportation and trading licenses for
traders. We estimate illegal mining exports have fallen by 37% from 108Mt in
201
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