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Joy Global Inc. Announces Third Quarter Fiscal 2012 Operating Results

China’s economy continues to decelerate. Demand for electricity is up 3 percent in May of 2012, compared to a growth rate of 10 to 11 percent a year ago. In addition to the effect of a slowing economy, recovery in hydropower generation has further reduced coal demand. Coal production in China has continued to increase as demand has slowed, further depressing prices. As prices dropped below $100 per tonne, imported coal gained an advantage over domestic production, and stockpiles at the domestic transfer point of Qinhuangdao increased and approached capacity. Higher cost domestic production was subsequently reduced and Beijing further mandated that domestic coal production be limited to 7 percent above 2011 levels. The month of July saw power demand rise 15 percent from June levels and 7 percent from last year. As a result, Qinhuangdao inventories have declined by 25 percent since early July, and seaborne prices have begun to recover.

Power generation in India is up 11 percent this year, while thermal coal imports are up 13 percent. Domestic production grew only 2.6 percent last year and it continues to fall well short of plan, putting more pressure on imports. The thinness of supply-demand was evidenced by a recent brownout that affected 600 million people, and many power plants continue to run with stockpiles of a week or less. In addition, India plans to add 97 gigawatts of coal-fired power generation over the next three to four years, requiring an additional 300 million tonnes of coal. As a result, India’s coal demand will continue to be a main driver in the seaborne market.

Turning to other commodities, strong demand from China and production limitations has kept the copper market in deficit during the first half of the year. This supply deficit increased by over 350 thousand tons compared to the first half of last year. Although China imports are expected to slow, the copper market should remain in deficit during the second half of the year.

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