We welcome article submissions from experts in the areas of coal, mining,
shipping, etc.
To Submit your article please click here.
|
|
|
Thursday, 12 November 15
FOREIGN COAL MINE ACQUISITION - STRATEGY VERSUS OPPORTUNITY FOR INDIAN UTILITIES - DIPESH DIPU
.jpg) The acquisition market for thermal coal assets abroad is dull. Sellers of all hues are in the market; some are actively scouting for buyers while others, hoping against hope that someone looking to buy might knock the door and hence, are their running operations even in cash losses. The coal assets were acquired by many Indian power utilities and commodity trading companies, and some were acquired even leading to unrelated diversification. Indonesia was the toast of coal mine acquisition investments from Indian companies, while there were big investments in Australia, South Africa and other countries too. Why now, when the quoted asset prices are all time low, most Indian investors are shying away when the contrarian strategy would typically require one to grab the opportunity?
The global prices of thermal coal are lower than the March 2009 levels, a lowest observed in a decade after the fall due to global financial crisis. Costs on the other hand have been rising, marginal costs of mining in Australia for a large percentile of coal mines is upward of US $ 60 per tonne, which is nearly the price they fetch for high grade coal. Percentiles for South African and Indonesian mines are better as these are the lowest cost producers in the world. It is common sense that when the commodity price is low, below the marginal cash cost of production, it is advisable to buy the lowest cost producer, which will survive and benefit once the commodity price recovers after the more expensive players are forced out of the market. Now, when the coal prices are lower than the marginal costs and there are several low cost producers willing to sell or have been forced to sell due to financial distress, the absence of buyers indicates only one thing – the concern about price recovery.
Global thermal coal prices had been stable in nominal terms through the mid-1970s till 2003, almost range-bound from US$ 25-35 per tonne. This essentially meant that in real terms prices fell through the three decades. However, since then demand led price hikes scaled new peaks every year and reached close to US$ 200 per tonne in July 2008. The global meltdown in the aftermath of financial crisis led to coal prices tumbling down to US$ 60-65 per tonne in March 2009 before heading back to US$ 135-140 per tonne by early 2011. And since then, there has been a constant downward trend that remains unabated till now.
China has been a prime mover of the global coal industry. The prices turned to its peaks when China became a net importer of coal in 2008-09. In 2014-15, domestic production of coal in China has seen a slowdown due to cost pressures, while its imports have fallen as well by nearly a third from last year. It is being considered that for cleaner environment, China is attempting to lower its dependence on coal-based power generation. While in India, domestic coal supply scenario has improved on two counts - Coal India and SCCL have improved production, and the demand for coal hasn’t picked up as expected. This has led to thermal coal imports falling albeit at a slow pace. Indian power generation capacity addition which was rapid in 2009-2012 has taken a hit, largely due to fuel crisis during that period, apart from challenges such as delays in approvals and clearances and resulting financing constraints. Coal India has also embarked upon a near-1 billion tonnes per annum production by 2020, which may improve domestic coal supplies, while capacity addition growth in power generation may take some time as investor confidence returns to the sector. China and India, thus, do not paint a picture of global coal price recovery soon.
US coal companies are faced with existential questions and have begun to look at the international markets for exports, given that local demand has suffered due to environmental protection laws. Australia also seems to have oversupply challenge. Several key projects that could have further enhanced coal production in Bowen and Galilee basins are now mothballed. Japan has plans to increase coal based generation that will positively impact the demand for coal, but that may not absorb the high oversupplies already in the market.
The other significant disruptor for coal sector has been the emergence of renewable energy, solar power in particular, with scalability and economics gradually tilting in their favour. On a total cost basis, including environmental costs, the inflexion point between coal based and solar power seems to have been reached. The pace of change in technology in these renewables is high, which has resulted in fall of solar power tariffs from Indian Rupees (INR) 12-15 per unit in 2009-10 to INR 4.63 in the recently concluded bids by NTPC. The trend of falling tariffs in solar power coupled with scalabilities that till recently were not considered achievable brought coal based power generation to the inflexion point. While concerns about quality of supplies may persist for some time, suffice it to say that the disruption in coal sector is imminent and inevitable, and that may have an impact on global coal prices.
Given these, it may be optimistic to evaluate coal assets on a price recovery outlook. It may make sense to invest in the assets that may sustain profitability at slightly lower than current prices, possibly in the marginal cost range of US$ 35-45 per tonne for coal of 5000-6000 kCal/kg gross calorific values on as received basis. Investors should prefer operating assets, which may not have construction and development risks as well as risks of permits. Essentially, with these, the investors also need to look at regulatory risks in the destination country.
Indonesian coal sector has been in a flux and has led to enhanced perception of regulatory risks even though from the logistics and mining costs points of view, it may appear the favourable place to buy coalmines. The divestment clause that restricts foreign ownership and eventually makes a foreign buyer a minority stakeholder has the potential to restrict investments only to smaller projects where reserves can be exhausted before a mine transfers ownership. South Africa and southern African countries like Mozambique, Malawi, Zimbabwe, Namibia and Botswana have challenges of logistics even though the regulatory regimes are favourable. Mozambique, for instance, has only one operating Sena rail link connecting the coalfields in Tete to Beira port, which is already running at capacity, and is about 900 kilometers. Infrastructure development plans are now doubtful given the concern of coal price recoveries. Australia has challenges of higher cost of production, compliance costs and higher logistics costs, particularly for coal assets in Galilee basin.
Given these, the attractiveness of coal mine acquisition is low even though the low asset prices provide opportunities. As reported in the national newspapers, Indian government owned companies seem to be scouting for assets, which is far more challenging for them given their approach and methodologies for acquisition. Tendering route may be considered the least efficient for such acquisition as the market size in such tenders gets limited to only those assets who choose to respond to the tenders. It is a passive approach which gets hampered by inefficiencies in information channels as well and may not reach the potential sellers with good assets. In my recently concluded assignments for a few of such government-owned companies, it was observed that most bidders turned out to be Indian companies that invested abroad and have not been able to develop the coal assets well for themselves. For success in the market, it is required that ground work is done privately to assess target zones and identify strategically fitting assets and then approach the owners to nudge them to sell. This, however, may be tough for the government-owned companies in light of their internal processes, which obviously have not been designed for such acquisitions.
For Indian companies to acquire foreign coal assets, it is critical that they identify their strategic objectives and not go by the opportunities the market seemingly provides in terms of large number of sellers in the market willing to sell at relatively low prices. Private sector companies have better procedural manoeuvrability while government-owned companies get tied up in their own processes to effectively acquire assets that fit them. In any case, the long term price outlook being uncertain, investors need to tread with caution and pick assets that may sustain profitability even with worse forecasts. Else, the winners curse follows.
By Dipesh Dipu
Energy, Natural Resources and Infrastructure Expert
India
Views and opinions / conclusion expressed herein are personal views of the author and not that of COALspot.com.
If you believe an article violates your rights or the rights of others, please contact us.
|
|
Monday, 20 June 16
CS COAL INDICES CONTINUE UPWARD TREND SINCE END APRIL
COALspot.com: Average 5000 GAR coal index of Indonesian origin was up again by 0.05 percent week over week to averaging $39.39 per ton this past we ...
Monday, 20 June 16
THE BDI HAS FELL 23 POINTS WEEK OVER WEEK
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities declined this past week. The BDI was fell 3.77 percent fr ...
Friday, 17 June 16
CHINA'S NEW POLICY TO REDUCE WASTE IN RENEWABLE ENERGY - FITCH
Chinese renewable energy producers are likely to benefit from a new policy that guarantees a minimum amount of solar and wind power is purchased in ...
Friday, 17 June 16
KOMIPO INVITES BIDS FOR BITUMINOUS COAL FOR BORYEONG POWER PLANT
COALspot.com: South Korea state-owned utility Korea Midland Power (KOMIPO) issued a new tender for 780,000 Metric Tons of Bituminous Coal for its B ...
Friday, 17 June 16
U.S WEEKLY COAL PRODUCTION UP 7.7% - EIA
COALspot.com – U.S., the world’s one of the largest coal producer has produced approximately totalled an estimated 12.9 million short t ...
|
|
|
Showing 2391 to 2395 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Borneo Indobara - Indonesia
- McConnell Dowell - Australia
- GVK Power & Infra Limited - India
- Manunggal Multi Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- PNOC Exploration Corporation - Philippines
- Sakthi Sugars Limited - India
- Thiess Contractors Indonesia
- Lanco Infratech Ltd - India
- International Coal Ventures Pvt Ltd - India
- The Treasury - Australian Government
- Central Java Power - Indonesia
- Globalindo Alam Lestari - Indonesia
- Coastal Gujarat Power Limited - India
- Electricity Generating Authority of Thailand
- Holcim Trading Pte Ltd - Singapore
- The University of Queensland
- PowerSource Philippines DevCo
- Uttam Galva Steels Limited - India
- Port Waratah Coal Services - Australia
- Timah Investasi Mineral - Indoneisa
- Jaiprakash Power Ventures ltd
- Bhushan Steel Limited - India
- Sree Jayajothi Cements Limited - India
- Mercuria Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Banpu Public Company Limited - Thailand
- Kideco Jaya Agung - Indonesia
- Kobexindo Tractors - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- Agrawal Coal Company - India
- Pendopo Energi Batubara - Indonesia
- Mintek Dendrill Indonesia
- TeaM Sual Corporation - Philippines
- Bukit Makmur.PT - Indonesia
- Parry Sugars Refinery, India
- Savvy Resources Ltd - HongKong
- Australian Commodity Traders Exchange
- India Bulls Power Limited - India
- Maheswari Brothers Coal Limited - India
- Planning Commission, India
- Mjunction Services Limited - India
- Rashtriya Ispat Nigam Limited - India
- Parliament of New Zealand
- Alfred C Toepfer International GmbH - Germany
- Intertek Mineral Services - Indonesia
- Bhatia International Limited - India
- Formosa Plastics Group - Taiwan
- Tata Chemicals Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- San Jose City I Power Corp, Philippines
- Chettinad Cement Corporation Ltd - India
- Cigading International Bulk Terminal - Indonesia
- MS Steel International - UAE
- Indian Energy Exchange, India
- Romanian Commodities Exchange
- Commonwealth Bank - Australia
- Directorate General of MIneral and Coal - Indonesia
- Bulk Trading Sa - Switzerland
- Samtan Co., Ltd - South Korea
- Bank of Tokyo Mitsubishi UFJ Ltd
- GAC Shipping (India) Pvt Ltd
- Kohat Cement Company Ltd. - Pakistan
- Cement Manufacturers Association - India
- Kalimantan Lumbung Energi - Indonesia
- Standard Chartered Bank - UAE
- Economic Council, Georgia
- Anglo American - United Kingdom
- Vedanta Resources Plc - India
- Madhucon Powers Ltd - India
- Global Green Power PLC Corporation, Philippines
- South Luzon Thermal Energy Corporation
- European Bulk Services B.V. - Netherlands
- Price Waterhouse Coopers - Russia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Marubeni Corporation - India
- Sojitz Corporation - Japan
- Billiton Holdings Pty Ltd - Australia
- Ministry of Finance - Indonesia
- Wilmar Investment Holdings
- Toyota Tsusho Corporation, Japan
- TNB Fuel Sdn Bhd - Malaysia
- Altura Mining Limited, Indonesia
- Indian Oil Corporation Limited
- Baramulti Group, Indonesia
- Power Finance Corporation Ltd., India
- Ministry of Transport, Egypt
- Semirara Mining Corp, Philippines
- Chamber of Mines of South Africa
- Iligan Light & Power Inc, Philippines
- Grasim Industreis Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pipit Mutiara Jaya. PT, Indonesia
- ICICI Bank Limited - India
- Tamil Nadu electricity Board
- LBH Netherlands Bv - Netherlands
- Sindya Power Generating Company Private Ltd
- Kumho Petrochemical, South Korea
- Eastern Energy - Thailand
- Energy Link Ltd, New Zealand
- Karaikal Port Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Ministry of Mines - Canada
- Larsen & Toubro Limited - India
- SMG Consultants - Indonesia
- CIMB Investment Bank - Malaysia
- Videocon Industries ltd - India
- Oldendorff Carriers - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- Bharathi Cement Corporation - India
- Star Paper Mills Limited - India
- Goldman Sachs - Singapore
- SN Aboitiz Power Inc, Philippines
- Vizag Seaport Private Limited - India
- Bhoruka Overseas - Indonesia
- Carbofer General Trading SA - India
- Central Electricity Authority - India
- Petron Corporation, Philippines
- Directorate Of Revenue Intelligence - India
- Africa Commodities Group - South Africa
- Sinarmas Energy and Mining - Indonesia
- Therma Luzon, Inc, Philippines
- ASAPP Information Group - India
- Posco Energy - South Korea
- PTC India Limited - India
- Salva Resources Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bukit Baiduri Energy - Indonesia
- Independent Power Producers Association of India
- VISA Power Limited - India
- White Energy Company Limited
- Gujarat Mineral Development Corp Ltd - India
- SMC Global Power, Philippines
- Attock Cement Pakistan Limited
- GMR Energy Limited - India
- Siam City Cement - Thailand
- Global Coal Blending Company Limited - Australia
- OPG Power Generation Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- The State Trading Corporation of India Ltd
- Dalmia Cement Bharat India
- IEA Clean Coal Centre - UK
- Makarim & Taira - Indonesia
- New Zealand Coal & Carbon
- Trasteel International SA, Italy
- Straits Asia Resources Limited - Singapore
- Singapore Mercantile Exchange
- Minerals Council of Australia
- Kapuas Tunggal Persada - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Kaltim Prima Coal - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Sical Logistics Limited - India
- Sarangani Energy Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Siam City Cement PLC, Thailand
- Meralco Power Generation, Philippines
- Indo Tambangraya Megah - Indonesia
- Energy Development Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Indonesian Coal Mining Association
- Indogreen Group - Indonesia
- Binh Thuan Hamico - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- Essar Steel Hazira Ltd - India
- Orica Australia Pty. Ltd.
- Merrill Lynch Commodities Europe
- Georgia Ports Authority, United States
- Interocean Group of Companies - India
- Krishnapatnam Port Company Ltd. - India
- Thai Mozambique Logistica
- Medco Energi Mining Internasional
- Gujarat Sidhee Cement - India
- Deloitte Consulting - India
- Barasentosa Lestari - Indonesia
- Orica Mining Services - Indonesia
- Aboitiz Power Corporation - Philippines
- Renaissance Capital - South Africa
- Gujarat Electricity Regulatory Commission - India
- Leighton Contractors Pty Ltd - Australia
- Eastern Coal Council - USA
- London Commodity Brokers - England
- Edison Trading Spa - Italy
- Bayan Resources Tbk. - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Neyveli Lignite Corporation Ltd, - India
- Electricity Authority, New Zealand
- AsiaOL BioFuels Corp., Philippines
- Coal and Oil Company - UAE
- Petrochimia International Co. Ltd.- Taiwan
- Xindia Steels Limited - India
- Coalindo Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Antam Resourcindo - Indonesia
- Australian Coal Association
- Kepco SPC Power Corporation, Philippines
- CNBM International Corporation - China
- Bahari Cakrawala Sebuku - Indonesia
- Mercator Lines Limited - India
- Indika Energy - Indonesia
- Malabar Cements Ltd - India
- Rio Tinto Coal - Australia
- Wood Mackenzie - Singapore
- Ambuja Cements Ltd - India
- Aditya Birla Group - India
- Maharashtra Electricity Regulatory Commission - India
- Bukit Asam (Persero) Tbk - Indonesia
- Heidelberg Cement - Germany
- Meenaskhi Energy Private Limited - India
- IHS Mccloskey Coal Group - USA
- Jindal Steel & Power Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Global Business Power Corporation, Philippines
- Bangladesh Power Developement Board
- Latin American Coal - Colombia
|
| |
| |
|
