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.
|
|
Thursday, 04 June 15
DRY BULK MARKET FAILED TO OFFER ANY POSITIVE SURPRISES - INTERMODAL
COALspot.com: This has been another week that the Dry Bulk market failed to offer any positive surprises, while the BDI, which is still faring belo ...
Wednesday, 03 June 15
SHIPPING MARKET INSIGHT - VASSILIS LOGOTHETIS
For some time now the Dry Bulk market has been severely affected by China’s slowing GDP growth rate that occurs in the background of increase ...
Tuesday, 02 June 15
FOB INDONESIA COAL Q3 SWAP ADVANCED 1.73% MONTH OVER MONTH
COALspot.com: Indonesian coal swap for delivery Q3 2015 gains month on month and lost week over week, this past week.
The Q3 swap was climbed ...
Tuesday, 02 June 15
FOB RICHARDS BAY COAL SWAPS; Q3'15 CLOSED HIGHER THAN Q1'16
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q3' 2015 up month over month and week over week.
The Q3 swap was up US$ 0.80 (1 ...
Monday, 01 June 15
35,000 MW POWER PLANTS TO BOOST COAL CONSUMPTION - JP
The government’s program to develop 35,000 megawatt (MW) power plants will increase domestic coal consumption, which currently stands at arou ...
|
|
|
Showing 2991 to 2995 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Offshore Bulk Terminal Pte Ltd, Singapore
- Orica Australia Pty. Ltd.
- Chamber of Mines of South Africa
- IHS Mccloskey Coal Group - USA
- Kalimantan Lumbung Energi - Indonesia
- Formosa Plastics Group - Taiwan
- ICICI Bank Limited - India
- Planning Commission, India
- Iligan Light & Power Inc, Philippines
- MS Steel International - UAE
- Kartika Selabumi Mining - Indonesia
- Sindya Power Generating Company Private Ltd
- Star Paper Mills Limited - India
- Renaissance Capital - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- India Bulls Power Limited - India
- Globalindo Alam Lestari - Indonesia
- Straits Asia Resources Limited - Singapore
- Siam City Cement - Thailand
- Savvy Resources Ltd - HongKong
- CIMB Investment Bank - Malaysia
- Meenaskhi Energy Private Limited - India
- Kaltim Prima Coal - Indonesia
- Merrill Lynch Commodities Europe
- Alfred C Toepfer International GmbH - Germany
- White Energy Company Limited
- Meralco Power Generation, Philippines
- Therma Luzon, Inc, Philippines
- Semirara Mining and Power Corporation, Philippines
- Mercator Lines Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Kumho Petrochemical, South Korea
- Trasteel International SA, Italy
- Maheswari Brothers Coal Limited - India
- Krishnapatnam Port Company Ltd. - India
- SMG Consultants - Indonesia
- Semirara Mining Corp, Philippines
- Heidelberg Cement - Germany
- Ceylon Electricity Board - Sri Lanka
- Parry Sugars Refinery, India
- Wilmar Investment Holdings
- Coalindo Energy - Indonesia
- ASAPP Information Group - India
- PowerSource Philippines DevCo
- Binh Thuan Hamico - Vietnam
- Karbindo Abesyapradhi - Indoneisa
- Agrawal Coal Company - India
- Medco Energi Mining Internasional
- Petron Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Simpson Spence & Young - Indonesia
- Aditya Birla Group - India
- Australian Commodity Traders Exchange
- Bayan Resources Tbk. - Indonesia
- Thai Mozambique Logistica
- Edison Trading Spa - Italy
- Intertek Mineral Services - Indonesia
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- Posco Energy - South Korea
- Lanco Infratech Ltd - India
- Bhatia International Limited - India
- Global Green Power PLC Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Barasentosa Lestari - Indonesia
- Rio Tinto Coal - Australia
- VISA Power Limited - India
- Aboitiz Power Corporation - Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Altura Mining Limited, Indonesia
- Vedanta Resources Plc - India
- Australian Coal Association
- Bukit Makmur.PT - Indonesia
- Global Business Power Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- McConnell Dowell - Australia
- Georgia Ports Authority, United States
- Standard Chartered Bank - UAE
- GN Power Mariveles Coal Plant, Philippines
- Kapuas Tunggal Persada - Indonesia
- Africa Commodities Group - South Africa
- Siam City Cement PLC, Thailand
- Electricity Generating Authority of Thailand
- Gujarat Electricity Regulatory Commission - India
- Coal and Oil Company - UAE
- Ind-Barath Power Infra Limited - India
- Coastal Gujarat Power Limited - India
- Energy Link Ltd, New Zealand
- The State Trading Corporation of India Ltd
- Dalmia Cement Bharat India
- Manunggal Multi Energi - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- TeaM Sual Corporation - Philippines
- Banpu Public Company Limited - Thailand
- OPG Power Generation Pvt Ltd - India
- Essar Steel Hazira Ltd - India
- Ministry of Transport, Egypt
- Singapore Mercantile Exchange
- Salva Resources Pvt Ltd - India
- Energy Development Corp, Philippines
- Parliament of New Zealand
- Commonwealth Bank - Australia
- Riau Bara Harum - Indonesia
- Sarangani Energy Corporation, Philippines
- Uttam Galva Steels Limited - India
- LBH Netherlands Bv - Netherlands
- GVK Power & Infra Limited - India
- Billiton Holdings Pty Ltd - Australia
- Petrochimia International Co. Ltd.- Taiwan
- Madhucon Powers Ltd - India
- SN Aboitiz Power Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Port Waratah Coal Services - Australia
- Bukit Baiduri Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Attock Cement Pakistan Limited
- Baramulti Group, Indonesia
- Samtan Co., Ltd - South Korea
- Malabar Cements Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Maharashtra Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Minerals Council of Australia
- Ministry of Finance - Indonesia
- Interocean Group of Companies - India
- PetroVietnam Power Coal Import and Supply Company
- AsiaOL BioFuels Corp., Philippines
- Anglo American - United Kingdom
- Global Coal Blending Company Limited - Australia
- SMC Global Power, Philippines
- Economic Council, Georgia
- Latin American Coal - Colombia
- Kohat Cement Company Ltd. - Pakistan
- Independent Power Producers Association of India
- Metalloyd Limited - United Kingdom
- Indian Energy Exchange, India
- Neyveli Lignite Corporation Ltd, - India
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Mines - Canada
- Leighton Contractors Pty Ltd - Australia
- PNOC Exploration Corporation - Philippines
- Central Java Power - Indonesia
- Jindal Steel & Power Ltd - India
- Indika Energy - Indonesia
- CNBM International Corporation - China
- Romanian Commodities Exchange
- Karaikal Port Pvt Ltd - India
- Sical Logistics Limited - India
- Tata Chemicals Ltd - India
- Sakthi Sugars Limited - India
- Price Waterhouse Coopers - Russia
- Goldman Sachs - Singapore
- Central Electricity Authority - India
- Kepco SPC Power Corporation, Philippines
- Electricity Authority, New Zealand
- International Coal Ventures Pvt Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Xindia Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Cement Manufacturers Association - India
- Antam Resourcindo - Indonesia
- Tamil Nadu electricity Board
- GMR Energy Limited - India
- Indonesian Coal Mining Association
- Sinarmas Energy and Mining - Indonesia
- Oldendorff Carriers - Singapore
- Holcim Trading Pte Ltd - Singapore
- Borneo Indobara - Indonesia
- GAC Shipping (India) Pvt Ltd
- London Commodity Brokers - England
- Sree Jayajothi Cements Limited - India
- Mjunction Services Limited - India
- Cigading International Bulk Terminal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Grasim Industreis Ltd - India
- The University of Queensland
- Timah Investasi Mineral - Indoneisa
- Toyota Tsusho Corporation, Japan
- New Zealand Coal & Carbon
- Directorate Of Revenue Intelligence - India
- Vizag Seaport Private Limited - India
- Thiess Contractors Indonesia
- Gujarat Sidhee Cement - India
- Asmin Koalindo Tuhup - Indonesia
- Indian Oil Corporation Limited
- Gujarat Mineral Development Corp Ltd - India
- Wood Mackenzie - Singapore
- South Luzon Thermal Energy Corporation
- Eastern Coal Council - USA
- Bharathi Cement Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- Bhushan Steel Limited - India
- The Treasury - Australian Government
- Mercuria Energy - Indonesia
- IEA Clean Coal Centre - UK
- Indogreen Group - Indonesia
- Orica Mining Services - Indonesia
- Ambuja Cements Ltd - India
- PTC India Limited - India
- Chettinad Cement Corporation Ltd - India
- Power Finance Corporation Ltd., India
- European Bulk Services B.V. - Netherlands
- Sojitz Corporation - Japan
- Bhoruka Overseas - Indonesia
- Eastern Energy - Thailand
- Bangladesh Power Developement Board
- Deloitte Consulting - India
- Makarim & Taira - Indonesia
- Marubeni Corporation - India
- Mintek Dendrill Indonesia
- Carbofer General Trading SA - India
|
| |
| |
|
