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, 25 April 16
BALTIC DRY INDEX ENDS WEEK ON A POSITIVE NOTE
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities continued to rose this week.
The freight market was ...
Friday, 22 April 16
U.S WEEKLY DOMESTIC COAL OUTPUT UP 8.2 PER CENT - EIA
COALspot.com – U.S the world’s second largest coal producer has produced approximately totaled an estimated 11.1 million short tons (mm ...
Thursday, 21 April 16
PANAMAX: A VERY HEALTHY NORTH ATLANTIC FOR BOTH ROUNDS AND FRONTHAUL
Capesize
Correcting after last week's quadrupling.
This year's highest daily average of USD 8000 came on the back of substantial pro ...
Wednesday, 20 April 16
2017 IS EXPECTED TO BE A MUCH BETTER YEAR FOR THE SHIPPING INDUSTRY - INTERMODAL
Some months ago we noted that all projections anticipated 2016 to be a better year from a macroeconomic point of view when compared to 2015. As we ...
Tuesday, 19 April 16
STARS STILL SHINING? KEY IMPORTERS THROUGH THE TELESCOPE - CLARKSONS
As the pace of growth in Chinese seaborne imports has slowed, and prospects for a return to stronger rates of expansion appear to have diminished, ...
|
|
|
Showing 2466 to 2470 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Madhucon Powers Ltd - India
- Simpson Spence & Young - Indonesia
- CNBM International Corporation - China
- Romanian Commodities Exchange
- Global Business Power Corporation, Philippines
- Semirara Mining Corp, Philippines
- Bhatia International Limited - India
- Rio Tinto Coal - Australia
- TeaM Sual Corporation - Philippines
- Central Electricity Authority - India
- Sinarmas Energy and Mining - Indonesia
- Dalmia Cement Bharat India
- Therma Luzon, Inc, Philippines
- Eastern Energy - Thailand
- Kideco Jaya Agung - Indonesia
- Vedanta Resources Plc - India
- Toyota Tsusho Corporation, Japan
- Sree Jayajothi Cements Limited - India
- Bukit Baiduri Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- Bharathi Cement Corporation - India
- Iligan Light & Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Tamil Nadu electricity Board
- Sical Logistics Limited - India
- Mercuria Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Sojitz Corporation - Japan
- Coalindo Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Kumho Petrochemical, South Korea
- Global Coal Blending Company Limited - Australia
- Barasentosa Lestari - Indonesia
- Makarim & Taira - Indonesia
- Larsen & Toubro Limited - India
- Uttam Galva Steels Limited - India
- Sakthi Sugars Limited - India
- PTC India Limited - India
- San Jose City I Power Corp, Philippines
- Mjunction Services Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Siam City Cement - Thailand
- Binh Thuan Hamico - Vietnam
- VISA Power Limited - India
- Bangladesh Power Developement Board
- ICICI Bank Limited - India
- Mercator Lines Limited - India
- Petron Corporation, Philippines
- Xindia Steels Limited - India
- Indonesian Coal Mining Association
- MS Steel International - UAE
- Offshore Bulk Terminal Pte Ltd, Singapore
- Marubeni Corporation - India
- Ceylon Electricity Board - Sri Lanka
- Timah Investasi Mineral - Indoneisa
- Trasteel International SA, Italy
- Directorate General of MIneral and Coal - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Coal and Oil Company - UAE
- Formosa Plastics Group - Taiwan
- Antam Resourcindo - Indonesia
- OPG Power Generation Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Gujarat Mineral Development Corp Ltd - India
- Indian Energy Exchange, India
- Indo Tambangraya Megah - Indonesia
- Grasim Industreis Ltd - India
- Independent Power Producers Association of India
- Semirara Mining and Power Corporation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Deloitte Consulting - India
- Asmin Koalindo Tuhup - Indonesia
- Ministry of Transport, Egypt
- Renaissance Capital - South Africa
- Cement Manufacturers Association - India
- Indogreen Group - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Attock Cement Pakistan Limited
- Kartika Selabumi Mining - Indonesia
- Agrawal Coal Company - India
- Malabar Cements Ltd - India
- Aditya Birla Group - India
- Miang Besar Coal Terminal - Indonesia
- Wilmar Investment Holdings
- Kapuas Tunggal Persada - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- SMC Global Power, Philippines
- CIMB Investment Bank - Malaysia
- Interocean Group of Companies - India
- Energy Link Ltd, New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Coal Association
- Chettinad Cement Corporation Ltd - India
- Sarangani Energy Corporation, Philippines
- Heidelberg Cement - Germany
- Indian Oil Corporation Limited
- Globalindo Alam Lestari - Indonesia
- Straits Asia Resources Limited - Singapore
- Goldman Sachs - Singapore
- Lanco Infratech Ltd - India
- Bulk Trading Sa - Switzerland
- GMR Energy Limited - India
- LBH Netherlands Bv - Netherlands
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Green Power PLC Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Vizag Seaport Private Limited - India
- Thiess Contractors Indonesia
- IEA Clean Coal Centre - UK
- Pendopo Energi Batubara - Indonesia
- The University of Queensland
- Anglo American - United Kingdom
- Bukit Makmur.PT - Indonesia
- Oldendorff Carriers - Singapore
- Orica Mining Services - Indonesia
- Intertek Mineral Services - Indonesia
- Electricity Generating Authority of Thailand
- Wood Mackenzie - Singapore
- Essar Steel Hazira Ltd - India
- Posco Energy - South Korea
- Commonwealth Bank - Australia
- Gujarat Sidhee Cement - India
- Salva Resources Pvt Ltd - India
- Star Paper Mills Limited - India
- Power Finance Corporation Ltd., India
- GVK Power & Infra Limited - India
- Maharashtra Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Samtan Co., Ltd - South Korea
- Kobexindo Tractors - Indoneisa
- Parry Sugars Refinery, India
- European Bulk Services B.V. - Netherlands
- Ministry of Finance - Indonesia
- Metalloyd Limited - United Kingdom
- Energy Development Corp, Philippines
- Chamber of Mines of South Africa
- ASAPP Information Group - India
- SMG Consultants - Indonesia
- Ind-Barath Power Infra Limited - India
- Neyveli Lignite Corporation Ltd, - India
- Borneo Indobara - Indonesia
- New Zealand Coal & Carbon
- Petrochimia International Co. Ltd.- Taiwan
- India Bulls Power Limited - India
- South Luzon Thermal Energy Corporation
- Medco Energi Mining Internasional
- Africa Commodities Group - South Africa
- Bukit Asam (Persero) Tbk - Indonesia
- Manunggal Multi Energi - Indonesia
- Kepco SPC Power Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- The State Trading Corporation of India Ltd
- Latin American Coal - Colombia
- Tata Chemicals Ltd - India
- Bhushan Steel Limited - India
- Meralco Power Generation, Philippines
- Ambuja Cements Ltd - India
- Baramulti Group, Indonesia
- Directorate Of Revenue Intelligence - India
- Karbindo Abesyapradhi - Indoneisa
- Jindal Steel & Power Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Parliament of New Zealand
- Bhoruka Overseas - Indonesia
- Economic Council, Georgia
- Savvy Resources Ltd - HongKong
- Karaikal Port Pvt Ltd - India
- Georgia Ports Authority, United States
- Port Waratah Coal Services - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Australian Commodity Traders Exchange
- Eastern Coal Council - USA
- International Coal Ventures Pvt Ltd - India
- Standard Chartered Bank - UAE
- London Commodity Brokers - England
- Riau Bara Harum - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Leighton Contractors Pty Ltd - Australia
- SN Aboitiz Power Inc, Philippines
- Thai Mozambique Logistica
- Central Java Power - Indonesia
- White Energy Company Limited
- Minerals Council of Australia
- Bahari Cakrawala Sebuku - Indonesia
- PNOC Exploration Corporation - Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Pipit Mutiara Jaya. PT, Indonesia
- The Treasury - Australian Government
- GN Power Mariveles Coal Plant, Philippines
- Videocon Industries ltd - India
- Carbofer General Trading SA - India
- PetroVietnam Power Coal Import and Supply Company
- Siam City Cement PLC, Thailand
- AsiaOL BioFuels Corp., Philippines
- Sindya Power Generating Company Private Ltd
- Singapore Mercantile Exchange
- Mintek Dendrill Indonesia
- Ministry of Mines - Canada
- Bayan Resources Tbk. - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Electricity Authority, New Zealand
- Cigading International Bulk Terminal - Indonesia
- Orica Australia Pty. Ltd.
- Banpu Public Company Limited - Thailand
- Aboitiz Power Corporation - Philippines
- Merrill Lynch Commodities Europe
- Planning Commission, India
- Jaiprakash Power Ventures ltd
- Edison Trading Spa - Italy
- Meenaskhi Energy Private Limited - India
- Krishnapatnam Port Company Ltd. - India
- McConnell Dowell - Australia
|
| |
| |
|
