Products and markets

Coal and the product life cycle

Coal has many important uses worldwide. The most significant uses are in electricity generation, steel production and cement manufacturing. There are two primary types of black coal produced – metallurgical and thermal. Metallurgical coal is used in the production of iron and steel, and thermal coal is used for power generation.

Macarthur Coal’s customers are mostly comprised of steel producers. Steel is an essential material for modern life and the demand for Macarthur’s products is closely linked to global steel demand. The manufacture of steel delivers the goods and services that society needs – housing and general construction, healthcare, telecommunications, agriculture, transport, clean water and access to reliable and affordable energy.



Macarthur’s global coal market profile

Macarthur has developed the Coppabella brand PCI coal that is established as the benchmark low volatile PCI coal in the international seaborne market. Production and sales from the Coppabella and Moorvale mines account for approximately 17% of the global seaborne market for LV PCI coal.

Macarthur holds sales contracts with the majority of the largest steel producers in the world including ArcelorMittal, Nippon Steel, JFE, Posco and Tata/Corus. Macarthur Coal has a tenement portfolio of potential growth projects in Queensland in response to the strong projected growth for metallurgical and thermal coal.

Traditionally, the Company's customers have been located in Asia (Japan, Korea, Taiwan), Europe and Brazil. In February 2009, Macarthur made its first sales of LV PCI coal to China. During 2010 financial year, the Company built on these initial sales to establish longer term relationships with Chinese customers, which represent an attractive growth market.

There are a number of structural factors that underpin Macarthur Coal’s positive longer term demand outlook for LV PCI coal.

The strong growth in steel demand in recent years, driven largely by China, has created a shortage in steelmaking raw materials, notably coking coal for which there are limited resources worldwide. Increased raw material costs, as a result of tight supply, are driving steel producers to focus on cost reduction.

The world’s steelmakers are currently upgrading existing blast furnaces to increase their production capacity to address growing steel demand. This creates new demand for coke that has to be fulfilled either by imports or increasing the use of PCI coal.

LV PCI coal is injected directly into the blast furnace as a replacement for more expensive coke, thereby creating significant cost savings.

China’s growth in domestic demand for metallurgical coal has resulted in a shortage of export coke. Having dominated this market up until 2008, China’s exports have fallen to a fraction of the previous levels.

Given this shortage, PCI coal demand is significantly enhanced as a coke replacement. This factor is emphasised by the fact that at full pig iron production, the rest of the world is structurally short of coke.