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.
|
|
Friday, 16 October 15
MAJOR REVISION OF NYPE TIME CHAPTER PARTY - BIMCO
Major revision of NYPE time charter party promises to be both balanced and comprehensive
BIMCO has today jointly issued the first revision of ...
Friday, 16 October 15
FOB INDONESIA COAL SWAP FOR Q4'15 DELIVERY FLAT WEEK OVER WEEK; DOWN 5.5 PER CENT M-M
COALspot.com: Indonesian coal swap for delivery Q4 2015 declined month on month and flat week over week.
The Q4 swap declined $ 2.23 (-5.51%) ...
Friday, 16 October 15
COAL PRODUCTION IN THE UNITED STATES DECREASED THIS WEEK; DOWN 11.3 PER CENT Y-Y, DOWN 3.5 PERCENT W-W
COALspot.com – United States the world’s second largest coal producer has produced approximately totaled an estimated 17.1 million shor ...
Friday, 16 October 15
INDONESIA REJOINING OPEC DESPITE BEING A NET IMPORTER OF PETROLEUM - EIA
The Organization of the Petroleum Exporting Countries (OPEC) notified Indonesia that it plans to accept the country's request to reactivate its ...
Thursday, 15 October 15
INDONESIA COAL PRICE REFERENCE FALLS FOR SEVEN STRAIGHT MONTH IN OCTOBER
COALspot.com - The Director General of Mineral and Coal of Indonesia once a again revised down Indonesian coal benchmark price this month.
The ...
|
|
|
Showing 2766 to 2770 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Thai Mozambique Logistica
- Electricity Authority, New Zealand
- Central Java Power - Indonesia
- Vedanta Resources Plc - India
- Ministry of Transport, Egypt
- Madhucon Powers Ltd - India
- Bhoruka Overseas - Indonesia
- Mintek Dendrill Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Mercuria Energy - Indonesia
- Sojitz Corporation - Japan
- Global Business Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Lanco Infratech Ltd - India
- Intertek Mineral Services - Indonesia
- SMC Global Power, Philippines
- London Commodity Brokers - England
- Planning Commission, India
- Meenaskhi Energy Private Limited - India
- Carbofer General Trading SA - India
- Coal and Oil Company - UAE
- Sical Logistics Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Iligan Light & Power Inc, Philippines
- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- Star Paper Mills Limited - India
- Interocean Group of Companies - India
- Thiess Contractors Indonesia
- Indo Tambangraya Megah - Indonesia
- Orica Mining Services - Indonesia
- Aboitiz Power Corporation - Philippines
- ASAPP Information Group - India
- Borneo Indobara - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Tata Chemicals Ltd - India
- Central Electricity Authority - India
- Bukit Asam (Persero) Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Indika Energy - Indonesia
- Bhushan Steel Limited - India
- Bukit Makmur.PT - Indonesia
- PNOC Exploration Corporation - Philippines
- Kepco SPC Power Corporation, Philippines
- Mjunction Services Limited - India
- Indian Energy Exchange, India
- White Energy Company Limited
- Port Waratah Coal Services - Australia
- Rio Tinto Coal - Australia
- GVK Power & Infra Limited - India
- Straits Asia Resources Limited - Singapore
- IEA Clean Coal Centre - UK
- Energy Link Ltd, New Zealand
- Deloitte Consulting - India
- Holcim Trading Pte Ltd - Singapore
- Ministry of Mines - Canada
- Georgia Ports Authority, United States
- Ambuja Cements Ltd - India
- Meralco Power Generation, Philippines
- Romanian Commodities Exchange
- Bukit Baiduri Energy - Indonesia
- Electricity Generating Authority of Thailand
- Gujarat Sidhee Cement - India
- Cigading International Bulk Terminal - Indonesia
- SN Aboitiz Power Inc, Philippines
- Altura Mining Limited, Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- SMG Consultants - Indonesia
- Renaissance Capital - South Africa
- Jorong Barutama Greston.PT - Indonesia
- Cement Manufacturers Association - India
- Essar Steel Hazira Ltd - India
- Jindal Steel & Power Ltd - India
- Minerals Council of Australia
- Economic Council, Georgia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Manunggal Multi Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- OPG Power Generation Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Coastal Gujarat Power Limited - India
- Sarangani Energy Corporation, Philippines
- Bangladesh Power Developement Board
- Kapuas Tunggal Persada - Indonesia
- IHS Mccloskey Coal Group - USA
- Parry Sugars Refinery, India
- Power Finance Corporation Ltd., India
- Metalloyd Limited - United Kingdom
- Globalindo Alam Lestari - Indonesia
- Antam Resourcindo - Indonesia
- Indian Oil Corporation Limited
- Therma Luzon, Inc, Philippines
- GMR Energy Limited - India
- Savvy Resources Ltd - HongKong
- Trasteel International SA, Italy
- Karbindo Abesyapradhi - Indoneisa
- Miang Besar Coal Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- Medco Energi Mining Internasional
- Agrawal Coal Company - India
- Riau Bara Harum - Indonesia
- Kobexindo Tractors - Indoneisa
- The University of Queensland
- Sree Jayajothi Cements Limited - India
- Asmin Koalindo Tuhup - Indonesia
- ICICI Bank Limited - India
- New Zealand Coal & Carbon
- Gujarat Electricity Regulatory Commission - India
- Grasim Industreis Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Baramulti Group, Indonesia
- Mercator Lines Limited - India
- Edison Trading Spa - Italy
- Kumho Petrochemical, South Korea
- Energy Development Corp, Philippines
- Standard Chartered Bank - UAE
- Bayan Resources Tbk. - Indonesia
- Jaiprakash Power Ventures ltd
- Maheswari Brothers Coal Limited - India
- Parliament of New Zealand
- Directorate Of Revenue Intelligence - India
- Price Waterhouse Coopers - Russia
- Timah Investasi Mineral - Indoneisa
- Pipit Mutiara Jaya. PT, Indonesia
- Sinarmas Energy and Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- Coalindo Energy - Indonesia
- Ministry of Finance - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- San Jose City I Power Corp, Philippines
- LBH Netherlands Bv - Netherlands
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Latin American Coal - Colombia
- Directorate General of MIneral and Coal - Indonesia
- Anglo American - United Kingdom
- Africa Commodities Group - South Africa
- MS Steel International - UAE
- Kaltim Prima Coal - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Vizag Seaport Private Limited - India
- Commonwealth Bank - Australia
- Maharashtra Electricity Regulatory Commission - India
- Samtan Co., Ltd - South Korea
- GAC Shipping (India) Pvt Ltd
- South Luzon Thermal Energy Corporation
- The Treasury - Australian Government
- Tamil Nadu electricity Board
- Offshore Bulk Terminal Pte Ltd, Singapore
- Malabar Cements Ltd - India
- Pendopo Energi Batubara - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Bhatia International Limited - India
- Salva Resources Pvt Ltd - India
- Semirara Mining Corp, Philippines
- Indogreen Group - Indonesia
- Global Green Power PLC Corporation, Philippines
- Uttam Galva Steels Limited - India
- European Bulk Services B.V. - Netherlands
- The State Trading Corporation of India Ltd
- CNBM International Corporation - China
- Posco Energy - South Korea
- Independent Power Producers Association of India
- Dalmia Cement Bharat India
- Semirara Mining and Power Corporation, Philippines
- Xindia Steels Limited - India
- Chamber of Mines of South Africa
- Indonesian Coal Mining Association
- India Bulls Power Limited - India
- Goldman Sachs - Singapore
- Ind-Barath Power Infra Limited - India
- Bulk Trading Sa - Switzerland
- Singapore Mercantile Exchange
- Eastern Energy - Thailand
- Formosa Plastics Group - Taiwan
- Siam City Cement - Thailand
- TeaM Sual Corporation - Philippines
- Chettinad Cement Corporation Ltd - India
- Australian Commodity Traders Exchange
- Attock Cement Pakistan Limited
- Eastern Coal Council - USA
- Siam City Cement PLC, Thailand
- Makarim & Taira - Indonesia
- Kideco Jaya Agung - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Marubeni Corporation - India
- Petron Corporation, Philippines
- Sindya Power Generating Company Private Ltd
- Aditya Birla Group - India
- Krishnapatnam Port Company Ltd. - India
- Oldendorff Carriers - Singapore
- Karaikal Port Pvt Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- PTC India Limited - India
- Merrill Lynch Commodities Europe
- Gujarat Mineral Development Corp Ltd - India
- VISA Power Limited - India
- Global Coal Blending Company Limited - Australia
- Heidelberg Cement - Germany
- PowerSource Philippines DevCo
- Leighton Contractors Pty Ltd - Australia
- Larsen & Toubro Limited - India
- McConnell Dowell - Australia
- Australian Coal Association
- Sakthi Sugars Limited - India
- Toyota Tsusho Corporation, Japan
- Wilmar Investment Holdings
- Neyveli Lignite Corporation Ltd, - India
- Orica Australia Pty. Ltd.
- Alfred C Toepfer International GmbH - Germany
- Videocon Industries ltd - India
- CIMB Investment Bank - Malaysia
- Bank of Tokyo Mitsubishi UFJ Ltd
|
| |
| |
|
