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.
|
|
Wednesday, 07 October 15
SHIPPING MARKET INSIGHT - INTERMODAL
Sale and Purchase activity during the first three quarters of 2015 and more specifically during the summer season has been rather remarkable. 421 v ...
Wednesday, 07 October 15
INDONESIA COAL SWAPS HAVE CONTINUED TO DECLINE, FALLING ALMOST 7% M-M
COALspot.com: Indonesian coal swap for delivery Q4 2015 declined month on month and week over week.
The Q4 swap declined $ 2.23 (-5.51%) per t ...
Tuesday, 06 October 15
THE IMPACT OF LOW OIL PRICE ON THE SHIPPING INDUSTRY - LITERATED
The fall in global oil prices over the last one year has been beneficial to the shipping industry. The demand for oil tankers has picked up and the ...
Tuesday, 06 October 15
FOB RICHARDS BAY COAL SWAPS PLUNGE MORE THAN 6 PER CENT M-M
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q4' 2015 declined week over week and month over month.
The Q4 swap was down US$ ...
Monday, 05 October 15
Q1 & Q2 2016 DELIVERY SWAPS DECLINED M-M AND W-W THIS PAST WEEK
COALspot.com: API 5 FOB Newcastle Coal swap for Q4’ 2015 delivery decreased $0.36 per ton (0.85%) month over month to US$ 42.12 per ton. The ...
|
|
|
Showing 2781 to 2785 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- European Bulk Services B.V. - Netherlands
- Deloitte Consulting - India
- Binh Thuan Hamico - Vietnam
- Sakthi Sugars Limited - India
- Marubeni Corporation - India
- Thai Mozambique Logistica
- Indian Oil Corporation Limited
- Tamil Nadu electricity Board
- Iligan Light & Power Inc, Philippines
- Africa Commodities Group - South Africa
- Jorong Barutama Greston.PT - Indonesia
- Interocean Group of Companies - India
- Bharathi Cement Corporation - India
- Malabar Cements Ltd - India
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- SN Aboitiz Power Inc, Philippines
- Georgia Ports Authority, United States
- The State Trading Corporation of India Ltd
- Pendopo Energi Batubara - Indonesia
- Straits Asia Resources Limited - Singapore
- Edison Trading Spa - Italy
- Kideco Jaya Agung - Indonesia
- Goldman Sachs - Singapore
- Electricity Authority, New Zealand
- IEA Clean Coal Centre - UK
- Indogreen Group - Indonesia
- Electricity Generating Authority of Thailand
- Siam City Cement - Thailand
- Rashtriya Ispat Nigam Limited - India
- Sarangani Energy Corporation, Philippines
- Latin American Coal - Colombia
- Ind-Barath Power Infra Limited - India
- Barasentosa Lestari - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Siam City Cement PLC, Thailand
- OPG Power Generation Pvt Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Global Green Power PLC Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Kaltim Prima Coal - Indonesia
- White Energy Company Limited
- Antam Resourcindo - Indonesia
- Salva Resources Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- SMC Global Power, Philippines
- Semirara Mining and Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Energy Link Ltd, New Zealand
- Australian Coal Association
- GVK Power & Infra Limited - India
- Mintek Dendrill Indonesia
- Toyota Tsusho Corporation, Japan
- Karbindo Abesyapradhi - Indoneisa
- Central Electricity Authority - India
- Renaissance Capital - South Africa
- Planning Commission, India
- Heidelberg Cement - Germany
- Petrochimia International Co. Ltd.- Taiwan
- Attock Cement Pakistan Limited
- Sojitz Corporation - Japan
- Agrawal Coal Company - India
- Romanian Commodities Exchange
- Jaiprakash Power Ventures ltd
- Aboitiz Power Corporation - Philippines
- Gujarat Sidhee Cement - India
- Bukit Baiduri Energy - Indonesia
- Simpson Spence & Young - Indonesia
- GMR Energy Limited - India
- International Coal Ventures Pvt Ltd - India
- Independent Power Producers Association of India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Vizag Seaport Private Limited - India
- Lanco Infratech Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Essar Steel Hazira Ltd - India
- Wilmar Investment Holdings
- Leighton Contractors Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Singapore Mercantile Exchange
- Ministry of Transport, Egypt
- Kumho Petrochemical, South Korea
- Miang Besar Coal Terminal - Indonesia
- Kobexindo Tractors - Indoneisa
- Bukit Makmur.PT - Indonesia
- Ambuja Cements Ltd - India
- Therma Luzon, Inc, Philippines
- Kartika Selabumi Mining - Indonesia
- Indian Energy Exchange, India
- Grasim Industreis Ltd - India
- Baramulti Group, Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Medco Energi Mining Internasional
- Parry Sugars Refinery, India
- Bhoruka Overseas - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- MS Steel International - UAE
- Asmin Koalindo Tuhup - Indonesia
- Riau Bara Harum - Indonesia
- London Commodity Brokers - England
- Wood Mackenzie - Singapore
- Anglo American - United Kingdom
- Trasteel International SA, Italy
- Neyveli Lignite Corporation Ltd, - India
- India Bulls Power Limited - India
- Thiess Contractors Indonesia
- Larsen & Toubro Limited - India
- TeaM Sual Corporation - Philippines
- Aditya Birla Group - India
- Tata Chemicals Ltd - India
- PTC India Limited - India
- Kapuas Tunggal Persada - Indonesia
- Sree Jayajothi Cements Limited - India
- Karaikal Port Pvt Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Mercator Lines Limited - India
- Bangladesh Power Developement Board
- Commonwealth Bank - Australia
- Sindya Power Generating Company Private Ltd
- Xindia Steels Limited - India
- South Luzon Thermal Energy Corporation
- Holcim Trading Pte Ltd - Singapore
- Orica Australia Pty. Ltd.
- Billiton Holdings Pty Ltd - Australia
- Global Coal Blending Company Limited - Australia
- Bhushan Steel Limited - India
- IHS Mccloskey Coal Group - USA
- Intertek Mineral Services - Indonesia
- Central Java Power - Indonesia
- Vedanta Resources Plc - India
- Gujarat Electricity Regulatory Commission - India
- AsiaOL BioFuels Corp., Philippines
- Rio Tinto Coal - Australia
- Power Finance Corporation Ltd., India
- The University of Queensland
- Economic Council, Georgia
- Oldendorff Carriers - Singapore
- Ceylon Electricity Board - Sri Lanka
- Indonesian Coal Mining Association
- Energy Development Corp, Philippines
- Timah Investasi Mineral - Indoneisa
- ICICI Bank Limited - India
- Madhucon Powers Ltd - India
- Chettinad Cement Corporation Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chamber of Mines of South Africa
- Global Business Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Semirara Mining Corp, Philippines
- Star Paper Mills Limited - India
- CNBM International Corporation - China
- Samtan Co., Ltd - South Korea
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- McConnell Dowell - Australia
- Banpu Public Company Limited - Thailand
- Borneo Indobara - Indonesia
- San Jose City I Power Corp, Philippines
- New Zealand Coal & Carbon
- Coal and Oil Company - UAE
- Meralco Power Generation, Philippines
- Savvy Resources Ltd - HongKong
- Indika Energy - Indonesia
- PNOC Exploration Corporation - Philippines
- Directorate Of Revenue Intelligence - India
- Kohat Cement Company Ltd. - Pakistan
- Minerals Council of Australia
- Uttam Galva Steels Limited - India
- Price Waterhouse Coopers - Russia
- Meenaskhi Energy Private Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- LBH Netherlands Bv - Netherlands
- GAC Shipping (India) Pvt Ltd
- Port Waratah Coal Services - Australia
- Cement Manufacturers Association - India
- Carbofer General Trading SA - India
- SMG Consultants - Indonesia
- Ministry of Mines - Canada
- Petron Corporation, Philippines
- VISA Power Limited - India
- PowerSource Philippines DevCo
- Dalmia Cement Bharat India
- Mjunction Services Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Bukit Asam (Persero) Tbk - Indonesia
- Coalindo Energy - Indonesia
- Ministry of Finance - Indonesia
- Globalindo Alam Lestari - Indonesia
- CIMB Investment Bank - Malaysia
- Parliament of New Zealand
- Makarim & Taira - Indonesia
- Metalloyd Limited - United Kingdom
- Bhatia International Limited - India
- Indo Tambangraya Megah - Indonesia
- Posco Energy - South Korea
- Orica Mining Services - Indonesia
- Coastal Gujarat Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Formosa Plastics Group - Taiwan
- Standard Chartered Bank - UAE
- Sical Logistics Limited - India
- Altura Mining Limited, Indonesia
- Merrill Lynch Commodities Europe
- Krishnapatnam Port Company Ltd. - India
- Jindal Steel & Power Ltd - India
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- Bulk Trading Sa - Switzerland
- Kepco SPC Power Corporation, Philippines
- The Treasury - Australian Government
- Videocon Industries ltd - India
|
| |
| |
|
