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.
|
|
Tuesday, 01 December 15
TANKERS VERSUS BULKERS - JUST PLAYING CATCH UP? - CLARKSONS
It’s now more than a year since the tanker market took off. In mid-2014 tanker earnings picked up and since then have been in the $30-$40,000 ...
Monday, 30 November 15
ASSOCARBONI LOOKS AT COAL FROM A DIFFERENT ANGLE
ASSOCARBONI is in favour of an international mechanism to provide financial support to countries building high efficiency low emission coal plants. ...
Monday, 30 November 15
CS 5000 GAR COAL INDEX FIRM D-O-D; WEAK W-O-W
COALspot.com: The 5000 GAR CS (i) coal index up slightly day over day.
According to the system generated index, the CS 50 (5000 GAR coal) was ...
Monday, 30 November 15
CFR SOUTH CHINA COAL SWAPS REMAINED UNCHANGED FROM LAST WEEK
COALspot.com: API 8 CFR South China Coal swap for Q1’ 2016 delivery declined US$ 4.50 (9.78%) per ton month over month.
A commodity swap ...
Sunday, 29 November 15
CAPE INDEX SURGES 383 POINTS WEEK OVER WEEK, BOOSTS BALTIC DRY INDEX
COALspot.com: The Baltic Dry Index, a measure of shipping rates, fell to 498 points on 20 November and touched a 30-year low, but on 27 November th ...
|
|
|
Showing 2681 to 2685 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Rio Tinto Coal - Australia
- Xindia Steels Limited - India
- Power Finance Corporation Ltd., India
- Attock Cement Pakistan Limited
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Orica Australia Pty. Ltd.
- Indonesian Coal Mining Association
- Carbofer General Trading SA - India
- AsiaOL BioFuels Corp., Philippines
- Meralco Power Generation, Philippines
- Aditya Birla Group - India
- Kideco Jaya Agung - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Manunggal Multi Energi - Indonesia
- Straits Asia Resources Limited - Singapore
- Australian Commodity Traders Exchange
- VISA Power Limited - India
- Metalloyd Limited - United Kingdom
- Mercator Lines Limited - India
- Mintek Dendrill Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- OPG Power Generation Pvt Ltd - India
- Energy Development Corp, Philippines
- Star Paper Mills Limited - India
- Singapore Mercantile Exchange
- Borneo Indobara - Indonesia
- Thai Mozambique Logistica
- Neyveli Lignite Corporation Ltd, - India
- Petrochimia International Co. Ltd.- Taiwan
- Kartika Selabumi Mining - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Ambuja Cements Ltd - India
- PNOC Exploration Corporation - Philippines
- Minerals Council of Australia
- Planning Commission, India
- Miang Besar Coal Terminal - Indonesia
- Standard Chartered Bank - UAE
- Oldendorff Carriers - Singapore
- SMG Consultants - Indonesia
- Tamil Nadu electricity Board
- Riau Bara Harum - Indonesia
- Central Java Power - Indonesia
- Georgia Ports Authority, United States
- Pipit Mutiara Jaya. PT, Indonesia
- Siam City Cement - Thailand
- Thiess Contractors Indonesia
- Meenaskhi Energy Private Limited - India
- IEA Clean Coal Centre - UK
- Karaikal Port Pvt Ltd - India
- Indika Energy - Indonesia
- Mjunction Services Limited - India
- Banpu Public Company Limited - Thailand
- The University of Queensland
- Bhoruka Overseas - Indonesia
- Medco Energi Mining Internasional
- Sinarmas Energy and Mining - Indonesia
- Jindal Steel & Power Ltd - India
- SN Aboitiz Power Inc, Philippines
- Formosa Plastics Group - Taiwan
- International Coal Ventures Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Renaissance Capital - South Africa
- Ministry of Mines - Canada
- Parliament of New Zealand
- Wood Mackenzie - Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Kobexindo Tractors - Indoneisa
- SMC Global Power, Philippines
- Romanian Commodities Exchange
- San Jose City I Power Corp, Philippines
- Therma Luzon, Inc, Philippines
- Ministry of Transport, Egypt
- Barasentosa Lestari - Indonesia
- Australian Coal Association
- Ceylon Electricity Board - Sri Lanka
- Essar Steel Hazira Ltd - India
- ASAPP Information Group - India
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Petron Corporation, Philippines
- White Energy Company Limited
- Leighton Contractors Pty Ltd - Australia
- Binh Thuan Hamico - Vietnam
- Makarim & Taira - Indonesia
- Savvy Resources Ltd - HongKong
- Electricity Authority, New Zealand
- Coastal Gujarat Power Limited - India
- Global Coal Blending Company Limited - Australia
- McConnell Dowell - Australia
- GVK Power & Infra Limited - India
- Heidelberg Cement - Germany
- GN Power Mariveles Coal Plant, Philippines
- Cigading International Bulk Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Dalmia Cement Bharat India
- Salva Resources Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Commonwealth Bank - Australia
- Tata Chemicals Ltd - India
- Bukit Makmur.PT - Indonesia
- Price Waterhouse Coopers - Russia
- Maharashtra Electricity Regulatory Commission - India
- Indian Oil Corporation Limited
- India Bulls Power Limited - India
- Goldman Sachs - Singapore
- Aboitiz Power Corporation - Philippines
- Anglo American - United Kingdom
- Simpson Spence & Young - Indonesia
- The State Trading Corporation of India Ltd
- Kapuas Tunggal Persada - Indonesia
- Pendopo Energi Batubara - Indonesia
- Directorate Of Revenue Intelligence - India
- Marubeni Corporation - India
- Electricity Generating Authority of Thailand
- New Zealand Coal & Carbon
- Toyota Tsusho Corporation, Japan
- Global Green Power PLC Corporation, Philippines
- Independent Power Producers Association of India
- Indogreen Group - Indonesia
- GAC Shipping (India) Pvt Ltd
- Chamber of Mines of South Africa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Bangladesh Power Developement Board
- Gujarat Mineral Development Corp Ltd - India
- Sojitz Corporation - Japan
- Bhushan Steel Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Coal and Oil Company - UAE
- Grasim Industreis Ltd - India
- Uttam Galva Steels Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Posco Energy - South Korea
- London Commodity Brokers - England
- Interocean Group of Companies - India
- Maheswari Brothers Coal Limited - India
- Samtan Co., Ltd - South Korea
- Coalindo Energy - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Billiton Holdings Pty Ltd - Australia
- Mercuria Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Wilmar Investment Holdings
- Jaiprakash Power Ventures ltd
- Baramulti Group, Indonesia
- CNBM International Corporation - China
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- MS Steel International - UAE
- Orica Mining Services - Indonesia
- Bulk Trading Sa - Switzerland
- Latin American Coal - Colombia
- Deloitte Consulting - India
- Krishnapatnam Port Company Ltd. - India
- TeaM Sual Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Kaltim Prima Coal - Indonesia
- IHS Mccloskey Coal Group - USA
- PowerSource Philippines DevCo
- Sakthi Sugars Limited - India
- Eastern Coal Council - USA
- Offshore Bulk Terminal Pte Ltd, Singapore
- Agrawal Coal Company - India
- ICICI Bank Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Electricity Authority - India
- TNB Fuel Sdn Bhd - Malaysia
- Semirara Mining Corp, Philippines
- Vedanta Resources Plc - India
- Trasteel International SA, Italy
- LBH Netherlands Bv - Netherlands
- Sarangani Energy Corporation, Philippines
- Bharathi Cement Corporation - India
- European Bulk Services B.V. - Netherlands
- Larsen & Toubro Limited - India
- Holcim Trading Pte Ltd - Singapore
- Energy Link Ltd, New Zealand
- Kepco SPC Power Corporation, Philippines
- Karbindo Abesyapradhi - Indoneisa
- Intertek Mineral Services - Indonesia
- Port Waratah Coal Services - Australia
- Africa Commodities Group - South Africa
- Indian Energy Exchange, India
- Global Business Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Sindya Power Generating Company Private Ltd
- PTC India Limited - India
- Madhucon Powers Ltd - India
- Iligan Light & Power Inc, Philippines
- Cement Manufacturers Association - India
- Vizag Seaport Private Limited - India
- Videocon Industries ltd - India
- Chettinad Cement Corporation Ltd - India
- Bayan Resources Tbk. - Indonesia
- Sree Jayajothi Cements Limited - India
- Altura Mining Limited, Indonesia
- Parry Sugars Refinery, India
- Kumho Petrochemical, South Korea
- Vijayanagar Sugar Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Bhatia International Limited - India
- Semirara Mining and Power Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Indo Tambangraya Megah - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Edison Trading Spa - Italy
- Gujarat Sidhee Cement - India
- GMR Energy Limited - India
- Siam City Cement PLC, Thailand
- The Treasury - Australian Government
- Malabar Cements Ltd - India
- Ministry of Finance - Indonesia
- Lanco Infratech Ltd - India
- South Luzon Thermal Energy Corporation
- Economic Council, Georgia
- Eastern Energy - Thailand
- Sical Logistics Limited - India
- Asmin Koalindo Tuhup - Indonesia
|
| |
| |
|
