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.
|
|
Sunday, 10 January 16
LNG BUNKERING IN ASIA: FUELING A PROMISING FUTURE? - REED SMITH
The requirement of a mandatory reduction of sulphur content in bunker fuel proposed by the International Maritime Organisation (IMO) poses a challe ...
Saturday, 09 January 16
BALTIC DRY INDEX SINKS 10% WEEK OVER WEEK TO AN ALL-TIME LOW OF 429 POINTS
COALspot.com: The Baltic Exchange’s main sea freight index, which tracks rates for ships carrying dry bulk commodities, decline around 10% we ...
Friday, 08 January 16
FOB INDONESIA COAL SWAP FOR DELIVERY H1'16 REMAIN FLAT AS DEMAND DROPS OFF
COALspot.com: Indonesian coal swap delivery Q1 2016 declined month on month, flat week over week. The price for coal has been in a Dull Market sinc ...
Friday, 08 January 16
FOB RICHARDS BAY COAL SWAP FOR Q2'16 DELIVERY CLOSED UP $0.13 AT $45.50 PER TON
COALspot.com: Q1’ 2016 API4 FOB Richards Bay Coal swap decline month over month and slightly up week over week.
The Q1’ 2016 FOB R ...
Friday, 08 January 16
WEEKLY US COAL PRODUCTION DECLINES 1.6% TO 11.7 MMST, SAYS EIA
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 11.7million short ...
|
|
|
Showing 2616 to 2620 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Krishnapatnam Port Company Ltd. - India
- Latin American Coal - Colombia
- Kobexindo Tractors - Indoneisa
- Meralco Power Generation, Philippines
- Cigading International Bulk Terminal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Altura Mining Limited, Indonesia
- ASAPP Information Group - India
- Energy Development Corp, Philippines
- Goldman Sachs - Singapore
- Kumho Petrochemical, South Korea
- Formosa Plastics Group - Taiwan
- Banpu Public Company Limited - Thailand
- IEA Clean Coal Centre - UK
- Asia Pacific Energy Resources Ventures Inc, Philippines
- White Energy Company Limited
- Samtan Co., Ltd - South Korea
- Savvy Resources Ltd - HongKong
- Holcim Trading Pte Ltd - Singapore
- Madhucon Powers Ltd - India
- Leighton Contractors Pty Ltd - Australia
- SMG Consultants - Indonesia
- Bangladesh Power Developement Board
- Tamil Nadu electricity Board
- Metalloyd Limited - United Kingdom
- Sree Jayajothi Cements Limited - India
- Grasim Industreis Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Coalindo Energy - Indonesia
- Coastal Gujarat Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Australian Coal Association
- Kartika Selabumi Mining - Indonesia
- Sojitz Corporation - Japan
- Medco Energi Mining Internasional
- Maheswari Brothers Coal Limited - India
- Eastern Coal Council - USA
- Renaissance Capital - South Africa
- Aditya Birla Group - India
- Thai Mozambique Logistica
- Semirara Mining Corp, Philippines
- Iligan Light & Power Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Parry Sugars Refinery, India
- Larsen & Toubro Limited - India
- Chamber of Mines of South Africa
- Orica Mining Services - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- International Coal Ventures Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- GMR Energy Limited - India
- Central Electricity Authority - India
- San Jose City I Power Corp, Philippines
- Tata Chemicals Ltd - India
- Central Java Power - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Attock Cement Pakistan Limited
- Malabar Cements Ltd - India
- Economic Council, Georgia
- Asmin Koalindo Tuhup - Indonesia
- Orica Australia Pty. Ltd.
- Globalindo Alam Lestari - Indonesia
- Minerals Council of Australia
- Directorate General of MIneral and Coal - Indonesia
- Oldendorff Carriers - Singapore
- The Treasury - Australian Government
- Coal and Oil Company - UAE
- Kaltim Prima Coal - Indonesia
- MS Steel International - UAE
- India Bulls Power Limited - India
- New Zealand Coal & Carbon
- Xindia Steels Limited - India
- LBH Netherlands Bv - Netherlands
- ICICI Bank Limited - India
- PNOC Exploration Corporation - Philippines
- Rio Tinto Coal - Australia
- Salva Resources Pvt Ltd - India
- Vedanta Resources Plc - India
- Indian Oil Corporation Limited
- Essar Steel Hazira Ltd - India
- Thiess Contractors Indonesia
- Riau Bara Harum - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dalmia Cement Bharat India
- Bhatia International Limited - India
- Sical Logistics Limited - India
- Africa Commodities Group - South Africa
- SN Aboitiz Power Inc, Philippines
- Agrawal Coal Company - India
- Global Green Power PLC Corporation, Philippines
- The University of Queensland
- Uttam Galva Steels Limited - India
- OPG Power Generation Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Mjunction Services Limited - India
- Simpson Spence & Young - Indonesia
- Bulk Trading Sa - Switzerland
- Siam City Cement PLC, Thailand
- Heidelberg Cement - Germany
- Barasentosa Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Baramulti Group, Indonesia
- London Commodity Brokers - England
- Sarangani Energy Corporation, Philippines
- Star Paper Mills Limited - India
- Intertek Mineral Services - Indonesia
- Merrill Lynch Commodities Europe
- Interocean Group of Companies - India
- Siam City Cement - Thailand
- Trasteel International SA, Italy
- GVK Power & Infra Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sindya Power Generating Company Private Ltd
- Posco Energy - South Korea
- Karaikal Port Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- South Luzon Thermal Energy Corporation
- Marubeni Corporation - India
- Jindal Steel & Power Ltd - India
- Videocon Industries ltd - India
- Deloitte Consulting - India
- Australian Commodity Traders Exchange
- Makarim & Taira - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Lanco Infratech Ltd - India
- Port Waratah Coal Services - Australia
- Ceylon Electricity Board - Sri Lanka
- Georgia Ports Authority, United States
- Kalimantan Lumbung Energi - Indonesia
- Toyota Tsusho Corporation, Japan
- Mintek Dendrill Indonesia
- Electricity Authority, New Zealand
- Standard Chartered Bank - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- PowerSource Philippines DevCo
- Energy Link Ltd, New Zealand
- Gujarat Mineral Development Corp Ltd - India
- Bhushan Steel Limited - India
- Antam Resourcindo - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Therma Luzon, Inc, Philippines
- Mercator Lines Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Semirara Mining and Power Corporation, Philippines
- The State Trading Corporation of India Ltd
- Parliament of New Zealand
- CNBM International Corporation - China
- Commonwealth Bank - Australia
- Gujarat Sidhee Cement - India
- Bharathi Cement Corporation - India
- Indika Energy - Indonesia
- CIMB Investment Bank - Malaysia
- Straits Asia Resources Limited - Singapore
- Edison Trading Spa - Italy
- Mercuria Energy - Indonesia
- VISA Power Limited - India
- Jaiprakash Power Ventures ltd
- TNB Fuel Sdn Bhd - Malaysia
- Petron Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- PTC India Limited - India
- Indogreen Group - Indonesia
- Borneo Indobara - Indonesia
- Electricity Generating Authority of Thailand
- Binh Thuan Hamico - Vietnam
- Neyveli Lignite Corporation Ltd, - India
- Directorate Of Revenue Intelligence - India
- Global Business Power Corporation, Philippines
- Singapore Mercantile Exchange
- Maharashtra Electricity Regulatory Commission - India
- Gujarat Electricity Regulatory Commission - India
- Bukit Baiduri Energy - Indonesia
- Vizag Seaport Private Limited - India
- GAC Shipping (India) Pvt Ltd
- Romanian Commodities Exchange
- PetroVietnam Power Coal Import and Supply Company
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
- Alfred C Toepfer International GmbH - Germany
- Kideco Jaya Agung - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Indonesian Coal Mining Association
- Eastern Energy - Thailand
- Sakthi Sugars Limited - India
- Meenaskhi Energy Private Limited - India
- Global Coal Blending Company Limited - Australia
- McConnell Dowell - Australia
- Cement Manufacturers Association - India
- Price Waterhouse Coopers - Russia
- Bukit Makmur.PT - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Indo Tambangraya Megah - Indonesia
- Ministry of Transport, Egypt
- Ministry of Mines - Canada
- SMC Global Power, Philippines
- Anglo American - United Kingdom
- Wood Mackenzie - Singapore
- Ambuja Cements Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Independent Power Producers Association of India
- Karbindo Abesyapradhi - Indoneisa
- Planning Commission, India
- Ministry of Finance - Indonesia
- Carbofer General Trading SA - India
- Bhoruka Overseas - Indonesia
- TeaM Sual Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Manunggal Multi Energi - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Wilmar Investment Holdings
- IHS Mccloskey Coal Group - USA
- Kepco SPC Power Corporation, Philippines
|
| |
| |
|
