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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.
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Tuesday, 15 September 15
API 5 FOB NEWCASTLE COAL SWAP FOR 4Q' 2015 DELIVERY CLOSED AT $42.71 PER TON ON 11 SEPT, SGX DATA SHOWS
COALspot.com: API 5 FOB Newcastle Coal swap for 4Q’ 2015 delivery declined $0.94 per MT (-2.15%) month over month to US$ 42.71 per mt. The sw ...
Monday, 14 September 15
Q1'16 CFR SOUTH CHINA COAL SWAP DECLINED $1.80 PMT M-M
COALspot.com: API 8 CFR South China Coal swap for 4Q’ 2015 delivery declined just US$ 1.62 (3.21 %) per MT month over month.
A commodity ...
Monday, 14 September 15
MOODY'S LOWERS COMMODITY PRICE ASSUMPTIONS ON MACRO, INDUSTRY FACTORS
COALspot.com: Moody's Investors Service has lowered its base metal price assumptions for 2015-17 as slowing growth in China, lower oil prices, ...
Sunday, 13 September 15
FREIGHT RATES ARE EXPECTED TO BE SOFT NEXT WEEK
COALspot.com: The BDI decreased further by 6.51 per cent or 57 points since last Friday and closed at 818 on 11 September 2015 while the cape index ...
Friday, 11 September 15
SHIPPING MARKETS SHOW MIXED EMOTIONS - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has managed to show marginal improvements over the past few days, with the Capesize segment faring better than smaller dry bulk ...
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Showing 2816 to 2820 news of total 6871 |
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- CIMB Investment Bank - Malaysia
- Kaltim Prima Coal - Indonesia
- The University of Queensland
- Formosa Plastics Group - Taiwan
- ASAPP Information Group - India
- International Coal Ventures Pvt Ltd - India
- Global Coal Blending Company Limited - Australia
- Krishnapatnam Port Company Ltd. - India
- Neyveli Lignite Corporation Ltd, - India
- Independent Power Producers Association of India
- Ind-Barath Power Infra Limited - India
- Oldendorff Carriers - Singapore
- Ministry of Finance - Indonesia
- Meralco Power Generation, Philippines
- Therma Luzon, Inc, Philippines
- Malabar Cements Ltd - India
- Coal and Oil Company - UAE
- Eastern Energy - Thailand
- Simpson Spence & Young - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Samtan Co., Ltd - South Korea
- OPG Power Generation Pvt Ltd - India
- Ministry of Mines - Canada
- Cigading International Bulk Terminal - Indonesia
- New Zealand Coal & Carbon
- Billiton Holdings Pty Ltd - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Dalmia Cement Bharat India
- Manunggal Multi Energi - Indonesia
- The State Trading Corporation of India Ltd
- Larsen & Toubro Limited - India
- Deloitte Consulting - India
- Thiess Contractors Indonesia
- Tata Chemicals Ltd - India
- Global Green Power PLC Corporation, Philippines
- Chettinad Cement Corporation Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- GVK Power & Infra Limited - India
- Chamber of Mines of South Africa
- Sindya Power Generating Company Private Ltd
- Kapuas Tunggal Persada - Indonesia
- Essar Steel Hazira Ltd - India
- Ambuja Cements Ltd - India
- Straits Asia Resources Limited - Singapore
- Bukit Baiduri Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- SMC Global Power, Philippines
- Leighton Contractors Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Latin American Coal - Colombia
- Goldman Sachs - Singapore
- Posco Energy - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Georgia Ports Authority, United States
- Interocean Group of Companies - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Planning Commission, India
- Cement Manufacturers Association - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Link Ltd, New Zealand
- Bharathi Cement Corporation - India
- Commonwealth Bank - Australia
- Orica Australia Pty. Ltd.
- Wood Mackenzie - Singapore
- Mercuria Energy - Indonesia
- Singapore Mercantile Exchange
- Kobexindo Tractors - Indoneisa
- Indian Oil Corporation Limited
- Altura Mining Limited, Indonesia
- Timah Investasi Mineral - Indoneisa
- Bangladesh Power Developement Board
- Mercator Lines Limited - India
- Minerals Council of Australia
- Indogreen Group - Indonesia
- Sical Logistics Limited - India
- Global Business Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Electricity Generating Authority of Thailand
- Bhatia International Limited - India
- Merrill Lynch Commodities Europe
- Sakthi Sugars Limited - India
- GAC Shipping (India) Pvt Ltd
- Siam City Cement PLC, Thailand
- Directorate Of Revenue Intelligence - India
- Orica Mining Services - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Sinarmas Energy and Mining - Indonesia
- VISA Power Limited - India
- Gujarat Electricity Regulatory Commission - India
- Petron Corporation, Philippines
- Madhucon Powers Ltd - India
- Kumho Petrochemical, South Korea
- White Energy Company Limited
- SMG Consultants - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Videocon Industries ltd - India
- Riau Bara Harum - Indonesia
- Anglo American - United Kingdom
- Energy Development Corp, Philippines
- Medco Energi Mining Internasional
- London Commodity Brokers - England
- Power Finance Corporation Ltd., India
- GMR Energy Limited - India
- Africa Commodities Group - South Africa
- Semirara Mining and Power Corporation, Philippines
- Australian Coal Association
- San Jose City I Power Corp, Philippines
- Thai Mozambique Logistica
- Jorong Barutama Greston.PT - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Agrawal Coal Company - India
- LBH Netherlands Bv - Netherlands
- Eastern Coal Council - USA
- Barasentosa Lestari - Indonesia
- Intertek Mineral Services - Indonesia
- Price Waterhouse Coopers - Russia
- Makarim & Taira - Indonesia
- Kartika Selabumi Mining - Indonesia
- Sarangani Energy Corporation, Philippines
- Economic Council, Georgia
- Bhushan Steel Limited - India
- South Luzon Thermal Energy Corporation
- Kepco SPC Power Corporation, Philippines
- Tamil Nadu electricity Board
- Jindal Steel & Power Ltd - India
- Vedanta Resources Plc - India
- Borneo Indobara - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining Corp, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Standard Chartered Bank - UAE
- PNOC Exploration Corporation - Philippines
- Marubeni Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Vizag Seaport Private Limited - India
- Aditya Birla Group - India
- Kideco Jaya Agung - Indonesia
- Wilmar Investment Holdings
- IEA Clean Coal Centre - UK
- Ministry of Transport, Egypt
- Pendopo Energi Batubara - Indonesia
- Aboitiz Power Corporation - Philippines
- CNBM International Corporation - China
- The Treasury - Australian Government
- Indonesian Coal Mining Association
- PTC India Limited - India
- Port Waratah Coal Services - Australia
- Bulk Trading Sa - Switzerland
- Australian Commodity Traders Exchange
- Antam Resourcindo - Indonesia
- Binh Thuan Hamico - Vietnam
- Coalindo Energy - Indonesia
- Attock Cement Pakistan Limited
- Kohat Cement Company Ltd. - Pakistan
- Gujarat Sidhee Cement - India
- Lanco Infratech Ltd - India
- Grasim Industreis Ltd - India
- Renaissance Capital - South Africa
- Metalloyd Limited - United Kingdom
- Xindia Steels Limited - India
- Parry Sugars Refinery, India
- Romanian Commodities Exchange
- European Bulk Services B.V. - Netherlands
- Globalindo Alam Lestari - Indonesia
- Sojitz Corporation - Japan
- Rashtriya Ispat Nigam Limited - India
- Trasteel International SA, Italy
- SN Aboitiz Power Inc, Philippines
- Toyota Tsusho Corporation, Japan
- Bayan Resources Tbk. - Indonesia
- Iligan Light & Power Inc, Philippines
- Edison Trading Spa - Italy
- Indian Energy Exchange, India
- India Bulls Power Limited - India
- IHS Mccloskey Coal Group - USA
- Star Paper Mills Limited - India
- Holcim Trading Pte Ltd - Singapore
- Uttam Galva Steels Limited - India
- Salva Resources Pvt Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Sree Jayajothi Cements Limited - India
- Jaiprakash Power Ventures ltd
- Mjunction Services Limited - India
- TeaM Sual Corporation - Philippines
- PowerSource Philippines DevCo
- Carbofer General Trading SA - India
- Siam City Cement - Thailand
- Baramulti Group, Indonesia
- Mintek Dendrill Indonesia
- Karaikal Port Pvt Ltd - India
- Central Java Power - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- AsiaOL BioFuels Corp., Philippines
- Ceylon Electricity Board - Sri Lanka
- Maheswari Brothers Coal Limited - India
- Indika Energy - Indonesia
- Rio Tinto Coal - Australia
- Bhoruka Overseas - Indonesia
- Bukit Makmur.PT - Indonesia
- MS Steel International - UAE
- Central Electricity Authority - India
- McConnell Dowell - Australia
- Electricity Authority, New Zealand
- Vijayanagar Sugar Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- ICICI Bank Limited - India
- Savvy Resources Ltd - HongKong
- Banpu Public Company Limited - Thailand
- Meenaskhi Energy Private Limited - India
- Indo Tambangraya Megah - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Parliament of New Zealand
- Coastal Gujarat Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Heidelberg Cement - Germany
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