Metallurgical Coal Scenario Analysis Case Study
Our client, one of the world’s largest mining companies, required a detailed analysis assessing the market share (volume) and price outcomes of various supply and demand scenarios for metallurgical coal to 2040. This was to assist in making optimal investment decisions across their asset and infrastructure portfolio, both in terms of the choice of investment and the timing of investment.
Recommendation
Given the customer’s strong market position and the broad range of potential supply expansions, there is a trade-off between market share and price. Commodity Insights was able to clearly identify the impact of supply expansions on the market price and cost structure across varying time periods under different demand assumptions (bullish, bearish, etc.). This assisted the customer in assessing the optimisation of its extensive asset portfolio out to 2040 under different market scenarios.
Methodology
Combining the clients’ six supply options (from their own portfolio) against five demand scenarios resulting in thirty potential outcomes that were assessed in detail. Building on our comprehensive and detailed global cost curves, we also estimated costs for additional supply by location to 2040, and new supply was ‘incentivised’ into the model based on the demand requirements. Infrastructure constraints were also assessed and applied where necessary, including identifying the timing and capital requirements for upgrades.
Demand was assessed at the country level using our rigorous steel demand model. Demand and supply were then assessed under each scenario for 2025, 2030, 2035 and 2040, applying a market equilibrium model, which estimated the clearing market volume and price (i.e. marginal cost) as well as supply share by country and market share for our customer.
Outcome
Our forecasts and comprehensive final report were presented to senior management at the client and the detailed models were also provided. The output was utilised by the client to examine the trade-off between volume and clearing price (i.e. margin) for their operations under the various scenarios assessed.
PROJECT MANAGER
Mark Gresswell
Director
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