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, 20 May 15
FOB RICHARDS BAY COAL SWAPS GAINED M-O-M, W-O-W
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q3' 2015 increased month over month and week over week.
The Q3 swap has increas ...
Wednesday, 20 May 15
BUKIT ASAM'S AVERAGE EXPORT PRICE WAS UNDER PRESSURE DURING Q1
COALspot.com: Indonesia’s state owned coal producer saw their profits fall in the first quarter of the year compared to the same period last ...
Wednesday, 20 May 15
IRON ORE PRICES TO REMAIN WEAK ON LOW DEMAND, HIGH OUTPUT - FITCH
Iron ore prices will stay low for several years due to increasing supply, weak demand growth in China and the slower-than-expected closure of high- ...
Tuesday, 19 May 15
KOMIPO IS SEEKING TOTAL 2.34 MMT OF HCV AND LCV COAL FOR 2015 - 2017
COALspot.com: South Korean state-owned utility Korea Midland Power (KOMIPO) issued an new tender to buy total 2.34 million Metric Tons (MT) of HCV ...
Monday, 18 May 15
FOB NEWCASTLE COAL SWAPS SCORE MONTHLY GAINS
COALspot.com: API 5 FOB Newcastle Coal swap for Q3’ 2015 delivery gained US$ 0.87 per MT (1.99%) month over month and lost US$ 0.03 week on w ...
|
|
|
Showing 3016 to 3020 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Baramulti Group, Indonesia
- New Zealand Coal & Carbon
- Salva Resources Pvt Ltd - India
- Mjunction Services Limited - India
- Riau Bara Harum - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Central Java Power - Indonesia
- PowerSource Philippines DevCo
- Wood Mackenzie - Singapore
- Kalimantan Lumbung Energi - Indonesia
- Carbofer General Trading SA - India
- CIMB Investment Bank - Malaysia
- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Aditya Birla Group - India
- Africa Commodities Group - South Africa
- Sindya Power Generating Company Private Ltd
- GN Power Mariveles Coal Plant, Philippines
- Marubeni Corporation - India
- Sinarmas Energy and Mining - Indonesia
- Metalloyd Limited - United Kingdom
- Petrochimia International Co. Ltd.- Taiwan
- Indian Oil Corporation Limited
- Petron Corporation, Philippines
- Ministry of Mines - Canada
- Anglo American - United Kingdom
- GVK Power & Infra Limited - India
- White Energy Company Limited
- Economic Council, Georgia
- Siam City Cement PLC, Thailand
- The State Trading Corporation of India Ltd
- Kartika Selabumi Mining - Indonesia
- Global Green Power PLC Corporation, Philippines
- Lanco Infratech Ltd - India
- European Bulk Services B.V. - Netherlands
- Heidelberg Cement - Germany
- Grasim Industreis Ltd - India
- Rio Tinto Coal - Australia
- Agrawal Coal Company - India
- Formosa Plastics Group - Taiwan
- Energy Link Ltd, New Zealand
- Bayan Resources Tbk. - Indonesia
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Iligan Light & Power Inc, Philippines
- Global Coal Blending Company Limited - Australia
- Asmin Koalindo Tuhup - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Banpu Public Company Limited - Thailand
- Madhucon Powers Ltd - India
- Kepco SPC Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Bangladesh Power Developement Board
- Makarim & Taira - Indonesia
- Mercator Lines Limited - India
- Energy Development Corp, Philippines
- IEA Clean Coal Centre - UK
- The University of Queensland
- Mercuria Energy - Indonesia
- Indo Tambangraya Megah - Indonesia
- GMR Energy Limited - India
- Therma Luzon, Inc, Philippines
- Bukit Baiduri Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Global Business Power Corporation, Philippines
- Australian Coal Association
- International Coal Ventures Pvt Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Sakthi Sugars Limited - India
- ICICI Bank Limited - India
- Edison Trading Spa - Italy
- Standard Chartered Bank - UAE
- Karaikal Port Pvt Ltd - India
- Interocean Group of Companies - India
- Singapore Mercantile Exchange
- Goldman Sachs - Singapore
- Meenaskhi Energy Private Limited - India
- Kaltim Prima Coal - Indonesia
- Parry Sugars Refinery, India
- Savvy Resources Ltd - HongKong
- Alfred C Toepfer International GmbH - Germany
- McConnell Dowell - Australia
- Posco Energy - South Korea
- Chamber of Mines of South Africa
- Electricity Authority, New Zealand
- Electricity Generating Authority of Thailand
- South Luzon Thermal Energy Corporation
- Eastern Energy - Thailand
- Antam Resourcindo - Indonesia
- Indian Energy Exchange, India
- Thiess Contractors Indonesia
- TeaM Sual Corporation - Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Parliament of New Zealand
- Chettinad Cement Corporation Ltd - India
- Xindia Steels Limited - India
- San Jose City I Power Corp, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Oldendorff Carriers - Singapore
- Jaiprakash Power Ventures ltd
- Thai Mozambique Logistica
- Sarangani Energy Corporation, Philippines
- Cigading International Bulk Terminal - Indonesia
- Straits Asia Resources Limited - Singapore
- Indogreen Group - Indonesia
- CNBM International Corporation - China
- India Bulls Power Limited - India
- Deloitte Consulting - India
- Vizag Seaport Private Limited - India
- Independent Power Producers Association of India
- Ceylon Electricity Board - Sri Lanka
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Aboitiz Power Corporation - Philippines
- LBH Netherlands Bv - Netherlands
- Merrill Lynch Commodities Europe
- Indika Energy - Indonesia
- Sree Jayajothi Cements Limited - India
- Bhatia International Limited - India
- ASAPP Information Group - India
- Port Waratah Coal Services - Australia
- Dalmia Cement Bharat India
- Indonesian Coal Mining Association
- Ministry of Transport, Egypt
- Eastern Coal Council - USA
- Bulk Trading Sa - Switzerland
- Offshore Bulk Terminal Pte Ltd, Singapore
- Pipit Mutiara Jaya. PT, Indonesia
- Krishnapatnam Port Company Ltd. - India
- Uttam Galva Steels Limited - India
- Sojitz Corporation - Japan
- Commonwealth Bank - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- Ambuja Cements Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Coal and Oil Company - UAE
- MS Steel International - UAE
- Bhushan Steel Limited - India
- Latin American Coal - Colombia
- Minerals Council of Australia
- Trasteel International SA, Italy
- PetroVietnam Power Coal Import and Supply Company
- Georgia Ports Authority, United States
- Karbindo Abesyapradhi - Indoneisa
- Planning Commission, India
- Borneo Indobara - Indonesia
- Jindal Steel & Power Ltd - India
- Bhoruka Overseas - Indonesia
- The Treasury - Australian Government
- Leighton Contractors Pty Ltd - Australia
- Orica Australia Pty. Ltd.
- SN Aboitiz Power Inc, Philippines
- Globalindo Alam Lestari - Indonesia
- PTC India Limited - India
- Mintek Dendrill Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Kapuas Tunggal Persada - Indonesia
- VISA Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Altura Mining Limited, Indonesia
- Bharathi Cement Corporation - India
- Manunggal Multi Energi - Indonesia
- London Commodity Brokers - England
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Kideco Jaya Agung - Indonesia
- Australian Commodity Traders Exchange
- Tata Chemicals Ltd - India
- Coastal Gujarat Power Limited - India
- Vedanta Resources Plc - India
- Barasentosa Lestari - Indonesia
- Orica Mining Services - Indonesia
- SMC Global Power, Philippines
- Pendopo Energi Batubara - Indonesia
- Malabar Cements Ltd - India
- Bukit Makmur.PT - Indonesia
- Maheswari Brothers Coal Limited - India
- Kobexindo Tractors - Indoneisa
- IHS Mccloskey Coal Group - USA
- Rashtriya Ispat Nigam Limited - India
- OPG Power Generation Pvt Ltd - India
- Ministry of Finance - Indonesia
- Central Electricity Authority - India
- Jorong Barutama Greston.PT - Indonesia
- PNOC Exploration Corporation - Philippines
- Attock Cement Pakistan Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate Of Revenue Intelligence - India
- Romanian Commodities Exchange
- SMG Consultants - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement - Thailand
- Billiton Holdings Pty Ltd - Australia
- Star Paper Mills Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Kumho Petrochemical, South Korea
- GAC Shipping (India) Pvt Ltd
- AsiaOL BioFuels Corp., Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sical Logistics Limited - India
- Power Finance Corporation Ltd., India
- Toyota Tsusho Corporation, Japan
- Simpson Spence & Young - Indonesia
- Binh Thuan Hamico - Vietnam
- Wilmar Investment Holdings
- Tamil Nadu electricity Board
- Meralco Power Generation, Philippines
- Coalindo Energy - Indonesia
- Renaissance Capital - South Africa
- Vijayanagar Sugar Pvt Ltd - India
- Cement Manufacturers Association - India
- Gujarat Sidhee Cement - India
- Samtan Co., Ltd - South Korea
- Semirara Mining Corp, Philippines
- Medco Energi Mining Internasional
- Videocon Industries ltd - India
- Larsen & Toubro Limited - India
- Maharashtra Electricity Regulatory Commission - India
|
| |
| |
|
