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.
|
|
Thursday, 24 March 16
NEWBUILDINGS' PRICES HAVE STARTED TO COME DOWN - ALLIED | HELLENIC SHIPPING NEWS
Newbuildings’ prices have started to come down, as demand has remained subdued for quite some time now. In its latest weekly report, shipbrok ...
Wednesday, 23 March 16
THE PANAMA CANAL - WILL THE MELTING OF POLAR ICE CAPS CREATE RIVAL NAVIGATIONAL WATERWAYS THROUGH THE ARCTIC? - INTERMODAL
The Panama Canal, 102 years after its initial opening, is now about to have its expansion completed with a cost of USD5.25 Billion. It is a project ...
Tuesday, 22 March 16
FOUR NEW MARKET MEMBERS HAVE JOINED GLOBALCOAL
globalCOAL® announced yesterday that four new Market Members have joined its international trading community.
Ferrocadia DMCC is an intern ...
Monday, 21 March 16
INDONESIAN 4200 GAR COAL INDEX ROSE $0.12 OR, 0.44% WEEK OVER WEEK; INDEX CLOASED AT $27.19 A TON
COALspot.com: Average 5000 GAR coal index of Indonesian origin rose 0.21 percent week over week to averaging $38.90 per ton on this past Friday, ac ...
Monday, 21 March 16
THE BALTIC DRY INDEX ROSE SLIGHTLY WEEK OVER WEEK; BCI UP 11.93%
COALspot.com: The Baltic Exchange, tracking rates for ships carrying dry bulk commodities continued rose this week helped by higher rates for Cape ...
|
|
|
Showing 2511 to 2515 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- GN Power Mariveles Coal Plant, Philippines
- Thiess Contractors Indonesia
- TeaM Sual Corporation - Philippines
- Holcim Trading Pte Ltd - Singapore
- Oldendorff Carriers - Singapore
- Attock Cement Pakistan Limited
- Metalloyd Limited - United Kingdom
- Mintek Dendrill Indonesia
- Kobexindo Tractors - Indoneisa
- Ministry of Mines - Canada
- Makarim & Taira - Indonesia
- Grasim Industreis Ltd - India
- Parliament of New Zealand
- Semirara Mining Corp, Philippines
- Australian Coal Association
- Leighton Contractors Pty Ltd - Australia
- Electricity Authority, New Zealand
- Cement Manufacturers Association - India
- Directorate General of MIneral and Coal - Indonesia
- India Bulls Power Limited - India
- South Luzon Thermal Energy Corporation
- Electricity Generating Authority of Thailand
- Bulk Trading Sa - Switzerland
- Indonesian Coal Mining Association
- Chettinad Cement Corporation Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Petrochimia International Co. Ltd.- Taiwan
- PetroVietnam Power Coal Import and Supply Company
- Meenaskhi Energy Private Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Mercator Lines Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Formosa Plastics Group - Taiwan
- Videocon Industries ltd - India
- Orica Mining Services - Indonesia
- McConnell Dowell - Australia
- Aboitiz Power Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Edison Trading Spa - Italy
- Intertek Mineral Services - Indonesia
- Goldman Sachs - Singapore
- Siam City Cement - Thailand
- Global Green Power PLC Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Ministry of Transport, Egypt
- Global Coal Blending Company Limited - Australia
- Neyveli Lignite Corporation Ltd, - India
- Africa Commodities Group - South Africa
- Coastal Gujarat Power Limited - India
- Barasentosa Lestari - Indonesia
- The State Trading Corporation of India Ltd
- Tamil Nadu electricity Board
- VISA Power Limited - India
- Commonwealth Bank - Australia
- Independent Power Producers Association of India
- Bukit Asam (Persero) Tbk - Indonesia
- Marubeni Corporation - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Romanian Commodities Exchange
- Trasteel International SA, Italy
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PNOC Exploration Corporation - Philippines
- Eastern Coal Council - USA
- Posco Energy - South Korea
- GMR Energy Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Merrill Lynch Commodities Europe
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- AsiaOL BioFuels Corp., Philippines
- Power Finance Corporation Ltd., India
- Sakthi Sugars Limited - India
- Altura Mining Limited, Indonesia
- Manunggal Multi Energi - Indonesia
- Uttam Galva Steels Limited - India
- Global Business Power Corporation, Philippines
- Sojitz Corporation - Japan
- Mercuria Energy - Indonesia
- Kepco SPC Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Indo Tambangraya Megah - Indonesia
- Bukit Baiduri Energy - Indonesia
- Therma Luzon, Inc, Philippines
- SMG Consultants - Indonesia
- Coal and Oil Company - UAE
- Ministry of Finance - Indonesia
- Sical Logistics Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Savvy Resources Ltd - HongKong
- Kalimantan Lumbung Energi - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Carbofer General Trading SA - India
- Timah Investasi Mineral - Indoneisa
- Jaiprakash Power Ventures ltd
- IEA Clean Coal Centre - UK
- GVK Power & Infra Limited - India
- Ceylon Electricity Board - Sri Lanka
- Baramulti Group, Indonesia
- Energy Link Ltd, New Zealand
- Riau Bara Harum - Indonesia
- Salva Resources Pvt Ltd - India
- Indogreen Group - Indonesia
- Bangladesh Power Developement Board
- Anglo American - United Kingdom
- Indika Energy - Indonesia
- PowerSource Philippines DevCo
- IHS Mccloskey Coal Group - USA
- Agrawal Coal Company - India
- Pendopo Energi Batubara - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- SMC Global Power, Philippines
- Borneo Indobara - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Ind-Barath Power Infra Limited - India
- Jindal Steel & Power Ltd - India
- Simpson Spence & Young - Indonesia
- Gujarat Sidhee Cement - India
- Economic Council, Georgia
- Parry Sugars Refinery, India
- Standard Chartered Bank - UAE
- Jorong Barutama Greston.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- MS Steel International - UAE
- Kaltim Prima Coal - Indonesia
- Price Waterhouse Coopers - Russia
- The Treasury - Australian Government
- Petron Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Pipit Mutiara Jaya. PT, Indonesia
- Madhucon Powers Ltd - India
- Globalindo Alam Lestari - Indonesia
- Thai Mozambique Logistica
- Eastern Energy - Thailand
- Antam Resourcindo - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Central Java Power - Indonesia
- Bhoruka Overseas - Indonesia
- Latin American Coal - Colombia
- Sinarmas Energy and Mining - Indonesia
- Australian Commodity Traders Exchange
- Orica Australia Pty. Ltd.
- The University of Queensland
- Essar Steel Hazira Ltd - India
- Directorate Of Revenue Intelligence - India
- Star Paper Mills Limited - India
- SN Aboitiz Power Inc, Philippines
- Kumho Petrochemical, South Korea
- Port Waratah Coal Services - Australia
- CIMB Investment Bank - Malaysia
- Malabar Cements Ltd - India
- Central Electricity Authority - India
- Bhatia International Limited - India
- Straits Asia Resources Limited - Singapore
- Banpu Public Company Limited - Thailand
- Vizag Seaport Private Limited - India
- London Commodity Brokers - England
- Heidelberg Cement - Germany
- Coalindo Energy - Indonesia
- Indian Oil Corporation Limited
- Gujarat Mineral Development Corp Ltd - India
- OPG Power Generation Pvt Ltd - India
- Energy Development Corp, Philippines
- Meralco Power Generation, Philippines
- Larsen & Toubro Limited - India
- Tata Chemicals Ltd - India
- Medco Energi Mining Internasional
- Deloitte Consulting - India
- PTC India Limited - India
- Bukit Makmur.PT - Indonesia
- Sree Jayajothi Cements Limited - India
- White Energy Company Limited
- Cigading International Bulk Terminal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Indian Energy Exchange, India
- Aditya Birla Group - India
- Vedanta Resources Plc - India
- Rio Tinto Coal - Australia
- Sarangani Energy Corporation, Philippines
- Renaissance Capital - South Africa
- Dalmia Cement Bharat India
- Maheswari Brothers Coal Limited - India
- Kideco Jaya Agung - Indonesia
- Georgia Ports Authority, United States
- Bayan Resources Tbk. - Indonesia
- CNBM International Corporation - China
- LBH Netherlands Bv - Netherlands
- New Zealand Coal & Carbon
- Singapore Mercantile Exchange
- Chamber of Mines of South Africa
- Karaikal Port Pvt Ltd - India
- Interocean Group of Companies - India
- GAC Shipping (India) Pvt Ltd
- Iligan Light & Power Inc, Philippines
- Karbindo Abesyapradhi - Indoneisa
- ICICI Bank Limited - India
- Ambuja Cements Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- San Jose City I Power Corp, Philippines
- Bhushan Steel Limited - India
- Semirara Mining and Power Corporation, Philippines
- Mjunction Services Limited - India
- Kartika Selabumi Mining - Indonesia
- Planning Commission, India
- Bharathi Cement Corporation - India
- Alfred C Toepfer International GmbH - Germany
- Minerals Council of Australia
- Siam City Cement PLC, Thailand
- Wilmar Investment Holdings
- Xindia Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Lanco Infratech Ltd - India
- Samtan Co., Ltd - South Korea
- ASAPP Information Group - India
|
| |
| |
|
