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, 28 October 15
Q2'16 FOB RICHARDS BAY COAL SWAP SEES FURTHER DECLINES
COALspot.com: API4 FOB Richards Bay Coal swap for delivery Q4' 2015 gained week over week and declined month over month.
The Q4 swap was d ...
Wednesday, 28 October 15
BDI INCREASE TOOK PLACE SOLELY ON THE BACK OF CAPESIZE PERFORMANCE, BUT........ - INTERMODAL
COALspot.com: The Dry Bulk market closed off the week noting a small improvement which nonetheless failed to lift sentiment, not only because ...
Tuesday, 27 October 15
Q1'16 API 5 FOB NEWCASTLE COAL SWAP DECLINE 6 PER CENT M-M
COALspot.com: API 5 FOB Newcastle Coal swap for Q4’ 2015 delivery decreased $2 per ton (4.66%) month over month to US$ 40.93 per ton. The swa ...
Monday, 26 October 15
PORT OF NEWCASTLE SHIPPED 10.5 PER CENT LESS COAL IN SEPTEMBER, COMPARED TO AUGUST LOADING
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export port, has shipped $1.161 billi ...
Monday, 26 October 15
CFR SOUTH CHINA COAL SWAPS CLOSE DOWN 4.3% AS DEMAND CONCERNS WEIGH
COALspot.com: API 8 CFR South China Coal swap for 4Q’ 2015 delivery down just US$ 1.48 (3.02 %) per ton month over month.
A commodity sw ...
|
|
|
Showing 2746 to 2750 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- ICICI Bank Limited - India
- Ambuja Cements Ltd - India
- CNBM International Corporation - China
- Savvy Resources Ltd - HongKong
- Global Coal Blending Company Limited - Australia
- Bukit Asam (Persero) Tbk - Indonesia
- McConnell Dowell - Australia
- Barasentosa Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Economic Council, Georgia
- Price Waterhouse Coopers - Russia
- Gujarat Electricity Regulatory Commission - India
- Chamber of Mines of South Africa
- Grasim Industreis Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Oldendorff Carriers - Singapore
- Minerals Council of Australia
- Tamil Nadu electricity Board
- Karbindo Abesyapradhi - Indoneisa
- Parry Sugars Refinery, India
- Jindal Steel & Power Ltd - India
- White Energy Company Limited
- Wood Mackenzie - Singapore
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Vedanta Resources Plc - India
- GMR Energy Limited - India
- Lanco Infratech Ltd - India
- IEA Clean Coal Centre - UK
- South Luzon Thermal Energy Corporation
- Ind-Barath Power Infra Limited - India
- Sical Logistics Limited - India
- Globalindo Alam Lestari - Indonesia
- Intertek Mineral Services - Indonesia
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- SMC Global Power, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Timah Investasi Mineral - Indoneisa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- SMG Consultants - Indonesia
- Malabar Cements Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Directorate General of MIneral and Coal - Indonesia
- San Jose City I Power Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Singapore Mercantile Exchange
- Borneo Indobara - Indonesia
- Merrill Lynch Commodities Europe
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- New Zealand Coal & Carbon
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Indogreen Group - Indonesia
- Marubeni Corporation - India
- Bhoruka Overseas - Indonesia
- Central Java Power - Indonesia
- Trasteel International SA, Italy
- European Bulk Services B.V. - Netherlands
- India Bulls Power Limited - India
- Petron Corporation, Philippines
- Orica Mining Services - Indonesia
- Power Finance Corporation Ltd., India
- Eastern Energy - Thailand
- Kobexindo Tractors - Indoneisa
- SN Aboitiz Power Inc, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Latin American Coal - Colombia
- Aditya Birla Group - India
- Edison Trading Spa - Italy
- OPG Power Generation Pvt Ltd - India
- Australian Coal Association
- Binh Thuan Hamico - Vietnam
- Sakthi Sugars Limited - India
- Coal and Oil Company - UAE
- LBH Netherlands Bv - Netherlands
- Siam City Cement - Thailand
- Uttam Galva Steels Limited - India
- Independent Power Producers Association of India
- Jaiprakash Power Ventures ltd
- PTC India Limited - India
- Formosa Plastics Group - Taiwan
- Xindia Steels Limited - India
- Indo Tambangraya Megah - Indonesia
- Indonesian Coal Mining Association
- Kumho Petrochemical, South Korea
- Attock Cement Pakistan Limited
- Holcim Trading Pte Ltd - Singapore
- Sindya Power Generating Company Private Ltd
- Chettinad Cement Corporation Ltd - India
- Ministry of Finance - Indonesia
- Antam Resourcindo - Indonesia
- Toyota Tsusho Corporation, Japan
- Videocon Industries ltd - India
- Eastern Coal Council - USA
- Anglo American - United Kingdom
- Salva Resources Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- Siam City Cement PLC, Thailand
- The State Trading Corporation of India Ltd
- Wilmar Investment Holdings
- PowerSource Philippines DevCo
- Riau Bara Harum - Indonesia
- Carbofer General Trading SA - India
- Therma Luzon, Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Sojitz Corporation - Japan
- GVK Power & Infra Limited - India
- Meenaskhi Energy Private Limited - India
- Mjunction Services Limited - India
- CIMB Investment Bank - Malaysia
- Orica Australia Pty. Ltd.
- Goldman Sachs - Singapore
- TeaM Sual Corporation - Philippines
- Simpson Spence & Young - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Neyveli Lignite Corporation Ltd, - India
- Mercator Lines Limited - India
- Renaissance Capital - South Africa
- Larsen & Toubro Limited - India
- Ministry of Transport, Egypt
- Bukit Baiduri Energy - Indonesia
- Deloitte Consulting - India
- Cigading International Bulk Terminal - Indonesia
- Dalmia Cement Bharat India
- Electricity Generating Authority of Thailand
- Heidelberg Cement - Germany
- Bhatia International Limited - India
- Karaikal Port Pvt Ltd - India
- Maheswari Brothers Coal Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bhushan Steel Limited - India
- Kapuas Tunggal Persada - Indonesia
- Bulk Trading Sa - Switzerland
- Samtan Co., Ltd - South Korea
- Krishnapatnam Port Company Ltd. - India
- Straits Asia Resources Limited - Singapore
- ASAPP Information Group - India
- Australian Commodity Traders Exchange
- Semirara Mining Corp, Philippines
- Planning Commission, India
- Petrochimia International Co. Ltd.- Taiwan
- Essar Steel Hazira Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Thiess Contractors Indonesia
- Energy Development Corp, Philippines
- Electricity Authority, New Zealand
- Kartika Selabumi Mining - Indonesia
- The Treasury - Australian Government
- The University of Queensland
- Coalindo Energy - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- MS Steel International - UAE
- Rio Tinto Coal - Australia
- Directorate Of Revenue Intelligence - India
- Georgia Ports Authority, United States
- Metalloyd Limited - United Kingdom
- Sarangani Energy Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Agrawal Coal Company - India
- Manunggal Multi Energi - Indonesia
- Indian Oil Corporation Limited
- Rashtriya Ispat Nigam Limited - India
- Energy Link Ltd, New Zealand
- Indian Energy Exchange, India
- Posco Energy - South Korea
- Romanian Commodities Exchange
- Tata Chemicals Ltd - India
- Kaltim Prima Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Medco Energi Mining Internasional
- Kalimantan Lumbung Energi - Indonesia
- VISA Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Vizag Seaport Private Limited - India
- Meralco Power Generation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Aboitiz Power Corporation - Philippines
- Billiton Holdings Pty Ltd - Australia
- Star Paper Mills Limited - India
- Cement Manufacturers Association - India
- Madhucon Powers Ltd - India
- Standard Chartered Bank - UAE
- Parliament of New Zealand
- Bharathi Cement Corporation - India
- Bukit Makmur.PT - Indonesia
- Indika Energy - Indonesia
- Interocean Group of Companies - India
- Bangladesh Power Developement Board
- Gujarat Sidhee Cement - India
- Altura Mining Limited, Indonesia
- International Coal Ventures Pvt Ltd - India
- Semirara Mining and Power Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Banpu Public Company Limited - Thailand
- Coastal Gujarat Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mintek Dendrill Indonesia
- GAC Shipping (India) Pvt Ltd
- PNOC Exploration Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Global Green Power PLC Corporation, Philippines
- Sree Jayajothi Cements Limited - India
- Global Business Power Corporation, Philippines
- Africa Commodities Group - South Africa
- Kideco Jaya Agung - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Baramulti Group, Indonesia
- Port Waratah Coal Services - Australia
- Thai Mozambique Logistica
- Ministry of Mines - Canada
- London Commodity Brokers - England
- Makarim & Taira - Indonesia
- Commonwealth Bank - Australia
|
| |
| |
|
