CAN CHINESE COAL BE COMPETITIVE AGAINST RUSSIAN COAL IN TURKEY?

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CAN CHINESE COAL BE COMPETITIVE AGAINST RUSSIAN
COAL IN TURKEY?

• Robert Yuksel YILDIRIM
• President CEO
• YILDIRIM GROUP OF COMPANIES

McCloskey Russian Coal Conference 2007
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Content

• 1. Structure of Turkish Coal Market
• 2. Advantages / Disadvantages of Russian Coal
  (RC)
• 3. Advantages / Disadvantages of Chinese Coal
  (CC)
• 4. Outlook of RC CC in Turkey
• 5. Forecast for Turkish Coal Market
• 6. Conclusion

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1. Structure of Turkish Coal Market

• 1.1. Types of Imported Coals in Turkey
• ? Steam Coal
• ? Coking Coal
• ? PCI Coal
• ? Sized Coal
• ? Anthracite

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1. Structure of Turkish Coal Market

• 1.2. Sectoral Distribution of Coal in Turkey
• ? Steel Industries
• ? Power Plants
• ? Cement Industries
• ? House Heating
• ? Others (Soda, Sugar, Textile, Paper,
  etc.)

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1. Structure of Turkish Coal Market

• 1.3. Consumption of Imported Coal in Turkey
• (in 000 mt)

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1. Structure of Turkish Coal Market

• 1.4. Consumption of Imported Coal in Turkey
• (in 000 mt)

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1. Structure of Turkish Coal Market

• 1.5. Coal Exporters to Turkey
• ? Coking Coal Australia, USA, Canada, Poland,
• Russia, Ukraine
• ? Steam Coal Russia, South Africa, Colombia
• ? PCI Coal Russia, Australia, Colombia, China
• ? Sized Coal Russia, China, South Africa
• ? Anthracite Russia, Ukraine, Vietnam

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1. Structure of Turkish Coal Market

• 1.6. Quality Comparison Table for Thermal Sized
  Coal

Coal Specs Russian Chinese
Total Moisture (a.r.) 10 max. 13 max.
Ash (d.b.) 3 - 14 7 - 13
Sulphur (d.b.) 0.5 max. 0.5 max.
Volatile Matters (d.b.) 11 - 29 27 - 32
CV N.A.R. (Kcal/kg) 6000 - 7400 5800 - 6900
Size 25 - 300 mm 25 - 300 mm
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2. Advantages / Disadvantages of RC

• 2.1. Advantages

• RUSSIA is always a WINNER in Turkey!...
• Because of
• ? Their best quality and specifications of
  coal
• ? Geographical location
• ? Lowest freight rates
• ? Faster deliveries
• ? Affordable amount of deliveries

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2. Advantages / Disadvantages of RC

• 2.2. Disadvantages

? Dependance on Ukrainian R/W Ports ? Old
infrastructure of railway network ? Lack of
R/W wagons for export ? Bad weather
conditions and ice declarations in ports
during winter ? Impossible to make fixed
price contract more than 3 months
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2. Advantages / Disadvantages of RC

• 2.2. Disadvantages

? The highest FOB prices ? Requirement of 100
prepayment ? Long term coal contracts not
available ? Coal mines located very far away
from ports ? Unable to load more than 30,000
dwt vessels to Turkey for sized coal
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3. Advantages / Disadvantages of CC

• 3.1. Advantages

? Cheaper FOB prices than RCs ? Very
effective and efficient ports for coal
export ? Ability to load Handymax Panamax
vessels for Turkish Market ? Ability of
screening coal at loadports for Turkish
sized coal buyers
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3. Advantages / Disadvantages of CC

• 3.1. Advantages

? Having long term coal contracts available ?
Accepting L/C payments ? Coal mines are located
near to loadports lower transportation
costs ? Effective R/W system
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3. Advantages / Disadvantages of CC

• 3.2. Disadvantages

? NDRC (National Development and Reform
Committee) has changed their coal policy for
the 11th 5-year plan (2006-2010) ? Export
license Export quota system ? Despite
contractual obligations some Chinese
suppliers may not perform contract during
high season

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3. Advantages / Disadvantages of CC

• 3.2. Disadvantages

? Quality assurance system still need
further development ? The sized coal quality is
lower than RC ? Geographical location ?
Higher freight rates to Turkey

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4. Outlook of RC CC in Turkey
2008 BEYOND?
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4. Outlook of RC CC in Turkey

• Russia has been and always will be the
• Dominant Power in the Turkish Coal Market.
• When Prices become much higher for
• Russian Coal
• ?
• Turkish Importers search alternative suppliers
  from China, South Africa elsewhere

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4. Outlook of RC CC in Turkey
4.1. Lets understand China better

• ? Chinas GDP is growing fast based on
• tremendous industrialazition triggering
  the
• demand of raw materials

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4. Outlook of RC CC in Turkey
4.1. Lets understand China better
? Statistics for all commodities in China are
not only unreliable but also
enigmatic ? No one outside of China will know
the real truth about Chinese economy
and industry for a long time
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4. Outlook of RC CC in Turkey
4.1. Lets understand China better

• ? You must understand Chinas coal policy
• to analyze the factors why the price of
• Chinese coal, especially sized coal would
  
• keep increasing in the future.

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4. Outlook of RC CC in Turkey
4.1. Lets understand China better

• ? China made three important steps to secure
  its
• future domestic coal demand
• 1. Beijing scrapped an 8 tax rebate for sized
  thermal coal exports in November 2006. This
  recently implemented legislation allowed China to
  become a NET coal importing country in 2007.

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4. Outlook of RC CC in Turkey
4.1. Lets understand China better

• 2. China has not increased its coal export
  license quantity for last 6 years and it is
  expected that Beijing will continue to reduce the
  export quotas step by step in the next few years
  to tempt the import of coal.
• 3. China removed import tax of 1 related
  with coal products on June 1, 2007 to encourage
  to boost its future coal import.

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4. Outlook of RC CC in Turkey
4.1. Lets understand China better

• ? Beijing may impose an export tax on coal
• products to curb the export. Beijing made
  
• similar moves in 2007 for Coke and
  various
• Ferroalloys products.
• ? China adjusted the export tax for coke
  products
• twice (first 5, then 15) during 2007.
  The
• aim of this decision was to secure the
  supplies
• necessary for the rapidly growing demand
  of
• the local steel industry.

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4. Outlook of RC CC in Turkey
4.1. Lets understand China better
? China became a NET coal importer in 2007
? Chinas Export Import of Coal Business (in
000 mt)
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4. Outlook of RC CC in Turkey
4.1. Lets understand China better
? Chinas Export Import of Coal Business in
2007 (in 000 mt)
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4. Outlook of RC CC in Turkey

• 4.2. Lets understand Russia better

• ? Russias GDP is growing fast based on export
  of
• natural resources

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4. Outlook of RC CC in Turkey

• 4.2. Lets understand Russia better

• ? Russia is ALWAYS and will REMAIN a
• major coal exporting country

(in 000 mt)
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4. Outlook of RC CC in Turkey

• 4.2. Lets understand Russia better

• ? Russian coal resources are majorly controlled
  
• by six private groups
• ? It is very difficult to make foreign
  investment in
• Russian coal resources
• ? Russias coal exports help its economy to stay
  in
• stable growth
• ? Russia has no plans to reduce coal production

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4. Outlook of RC CC in Turkey

• 4.3. Similarities of RC CC Industries

• ? On one side, Chinese Central Government
• shuts down all small / unhealthy /
  unsafe
• coal mines on the other side, local
  Chinese
• Governments silently allow these closed
• coal mines to continue their coal
  production.

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4. Outlook of RC CC in Turkey

• 4.3. Similarities of RC CC Industries

• ? On one side, small Russian coal producers
• are trying to produce export coal on
  the
• other side, Russian Coal Barons are
  trying
• to blockade these small exporters by
  stopping
• them by preventing to access to R/W
  network
• and ports.

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4. Outlook of RC CC in Turkey

• 4.4. Why CFR Coal Prices will continue to
• increase in Turkey?

• ? The fast growing steel cement industries
• ? Expected boom in coal-fired power plants
• ? Constant growth of Turkish Economy for 22
  quarters in-a-row and expected to continue

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4. Outlook of RC CC in Turkey

• 4.4. Why CFR Coal Prices will continue to
  
• increase in Turkey?

• ? Boom in construction of new houses
• ? Turkey doesnt have good enough coal reserves
• left to satisfy the growing of coal
  consumption
• ? Chinas domestic coal demand will trigger the
• prices in the World and Turkey

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5. Forecast for Turkish Coal Market

• 5.1. Steel Industry
• 5.1.1 Turkeys Steel production (in 000 mt)

5.1.2 Forecast for Consumption of ? Coking coal
? ? PCI coal ? ? Anthracite ?
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5. Forecast for Turkish Coal Market

• 5.2. Cement Industry
• 5.2.1 Turkeys Cement production (in 000 mt)

5.2.2 Forecast for Consumption of ? Steam coal
?
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5. Forecast for Turkish Coal Market

• 5.3. Coal Fired Power Plant Industry

• ? Turkeys demand in electricity is growing
• tremendously
• ? The Turkish Electricity Market Regulatory
  Authority (EPDK) authorized licenses in total of
  2190 MW to several private groups to produce
  electricity by imported coal-fired power plants
  by end of 2009

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5. Forecast for Turkish Coal Market

• 5.3. Coal Fired Power Plant Industry

• ? In addition to this power generating capacity,
  by end of 2008 we expect that various private
  coal-fired power plant projects (approx. 5000 MW
  total) will apply for a licenses at EPDK by using
  the imported steam coal

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5. Forecast for Turkish Coal Market

• 5.3. Coal Fired Power Plant Industry

• ? YILDIRIM Group has signed a JV for
• establishing one coal-fired power plant
  with
• capacity of 300 MW to be built within
  next 3
• years and has plans to establish two
  more
• coal-fired power plants with a total
  capacity of
• 2000 MW to be built within next 8
  years.
• Imported steam coal will be used at all
  these plants.

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5. Forecast for Turkish Coal Market

• 5.3. Coal Fired Power Plant Industry

• ? Hence, the consumption of imported
• steam coal will increase continously due
  
• to upcoming coal-fired power plants.

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5. Forecast for Turkish Coal Market

• 5.4. Forecast of Imported Sized Coal

FORECAST RUSSIA (in 000 mt) CHINA (in 000 mt)
2007  7,000   2,000
2008 7,500     2,000
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5. Forecast for Turkish Coal Market

• 5.4.1. Forecast of CFR Turkey Price for
• Imported Sized Coal

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5. Forecast for Turkish Coal Market

• 5.4.2. Forecast of Sellers/Buyers
• Perspectives for CFR Prices

FORECAST RUSSIA RUSSIA CHINA CHINA
FORECAST 2007 2008 2007 2008
EXPORTERS ? ? ? ?
IMPORTERS ? ? ? ?
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6. CONCLUSION
? Steam coal will enjoy a strong and growing
market in Turkey. ? Huge investments in
coal-fired power plants and fast growing domestic
cement sector will trigger additional demand for
Russian steam coal in the forthcoming years. ?
The imported steam coal sector will grow every
year minimum 20 however, expansion of sized
coal business will slow down.
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6. CONCLUSION

• ? Turkish Coal Market is always bullish and the
  Bulls will rule this coal market.
• ? The removal of the export rebates, the
  cancellation of the import tax, the expected
  export tax and the future decrease of export
  quota will complicate the life of Turkish
  importers of Chinese coal.
• ? The Russians will benefit from these policies
  despite the sluggish future demand for sized coal
  products in Turkey.

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6. CONCLUSION

• ? Beijings new coal policy will strengthen the
  position of the Russian sized coal vendors.
• ? China became a NET importer of coal from 2007.
• ? The Chinese are looking for global acquisition
  possibilities of coal enterprises and mines in
  Australia, Botswana, Mozambique, Indonesia,
  Vietnam, South Africa and Russia to secure their
  future coal needs.
• ? China will push the global coal prices up.

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6. CONCLUSION

• ? Profit levels will rise sharply in future for
  all type of Russian coal suppliers.
• ? Big Russian coal groups like KRUTrade, Mechel
  and MIRTrade will enjoy remarkable profits
  obtained from the Turkish coal business.

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6. CONCLUSION

• ? The CFR coal prices will ascend faster than
  the real FOB costs.
• ? We observe the effects of the Chinese
  influence at the global commodity prices since
  2002. In particular, global coal products (incl.
  Russian and Chinese origin) will become more
  expensive (approx. 20 per annum) in the
  forthcoming years.

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• Thank you!

Russian Coal Conference 2007 Istanbul, Turkey
September 25, 2007