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Dhamra Port and Tata Steel extends cargo handling agreement for one
more year
CIL spot coal allotment via other platform sharply down in May
US, Australia to see more metallurgical coal cuts on weak prices: Cowen
China's Shenhua asking buyers for help to reduce coal stocks: sources
Unless the authorities allow it to expand, the volume of coal will continue to fall. Rajmahal, which used to send
around 12-13 rakes a day to NTPCBSE 1.15 % plants, is down to just about six. NTPC has been forced to
shut a 500 mw unit in Kahalgaon and a 210 MW unit in Farakka.
growth to well over to 6 percent, it achieved 6.4 percent in 2008-2009, achieved close to 7 percent in 20092010, was on its way to move towards 7-8 percent kind of growth when all of a sudden in 2010-2011, the
ministry of environment and forest introduced something called Comprehensive Environment Pollution Index
(CEPI) and introduced a blanket ban on all industrial expansion in all the areas which are critically polluted
without looking into what are the industries, that are leading to this critical pollution. Had they done that then
coal mining would have been spared in those days. So that is the reason why in 2010-2011 and 2011-2012
Coal India simply fell flat. The growth rate was just over 1 percent or so. In these two years, Coal India has
missed out on production of at least something like 55 million tonne. So today our production level in Coal
India would have been 55 million tonne better than what it is just because of that single Act. The second is no
new credible players are getting added. So in this situation, I am not convinced that actual steps that are
required to be done are being taken. What we need to simply do is to open up the coal sector and get
formidable mining players. Players with core competence in coal mining and that is what is going to make a
difference. Anuj: The other point about reducing E-auction because in the past Coal India has maintained that
it is not something that it does by choice, it is something that it has to do because transportation becomes an
issue, how would you comment on that? Bhattacharya: Not only that. Coal India has not been giving coal
inputs to any new consumer for the last more than a decade. So now if somebody needs coal who doesnt
have a linkage, where do they go? E-auction is one route which enables anybody to get coal. So it provides a
transparent access and 10 percent is not a big amount and it also enables Coal India to discover the price.
The subsidy that Coal India provides in its pricing becomes unveiled through the e-auction process. So I think
a companys corporate policy should be left to the company to decide. You can always make E-auction zero
and then transfer that coal to power sector but that is not the solution then you are slightly stepping into the
corporate governance part of it. The company needs to have set its own rules for governance. Sonia: What did
you make of the Power Ministers statements of increasing the supply of coal but we all know that problems
that persist in the system? Mr Bhattacharya was pointing out that we need to open up the coal sector and get
formidable players but the previous government has also spoken about that, we havent seen anything like that
come through, what is your assessment of the situation, how it could pan out from here? Dole: What he is
trying to do is just to ensure that no plant should remain stranded due to lack of coal availability and that is to
me an extension of the policy, which was envisaged by the previous government and absolutely a step in right
direction. I think what further needs to be done is also to ensure that the power offtake kind of goes up
because already there is a mechanism, which is being implemented whereby one can import coal and pass on
that incremental cost to the end level consumers. But what is currently withholding the sectoral recovery is
essentially flat or muted offtake of power from the state electricity boards (SEBs). So to me, while coal is surely
a bit of an issue, Coal India needs to ramp up the coal production and probably these steps will ensure over a
period of time that the coal supply kind of goes up but till the time the offtake from the SEBs improves, these
wages may not lead to the desired results in medium-term to long-term to me. Sonia: How do you approach a
stock like Coal India now? Purely on the back of these, the possibility that they will have to cut down on Eauction sales where most of their profitability comes from, what could the impact on Coal India be? Dole: I
dont cover Coal India myself but as a house, we think that if essentially the company is able to ramp up the
coal production from hereon that is what our analysts have been writing in the reports, there is a reasonable
risk reward even now from here on the table. Anuj: The other issue which has been discussed over last one
month is breaking up Coal India though the minister was quick to clarify that that proposal is not on board right
now, what would be your comment on that, could that be one of the solutions? Bhattacharya: My point has
always been that we need to add formidable mining players and those should be additional players. So
breaking Coal India doesnt make that happen, because the same subsidiaries becoming companies doesnt
add to mining players so I dont think that will help. Not only that, the Coal India does have a lot of value
addition in the system because corporate governance vision, long-term vision and things like that are all dealt
at the Coal India level. The subsidiaries are big enough but they have been always looking towards Coal India
and the ministry of coal for overall policy level guidance. So I dont think breaking Coal India does make too
much of a sense. In this country, there are not too many companies or not too many sectors where Indias
largest is also worlds largest. Coal India happens to be one of those rare things, the largest coal mining
company in the world also happens to be Coal India. So just breaking it for whatever little gains here and
there, I dont think it should be a sensible thing and I am very happy that the minister has clarified that that is
not on cards. Coal India stock price On June 24, 2014, at 14:41 hrs Coal India was quoting at Rs 389.65, up
Rs 1.75, or 0.45 percent. The 52-week high of the share was Rs 423.50 and the 52-week low was Rs 238.35.
The company's trailing 12-month (TTM) EPS was at Rs 23.76 per share as per the quarter ended March 2014.
The stock's price-to-earnings (P/E) ratio was 16.4. The latest book value of the company is Rs 56.24 per
share. At current value, the price-to-book value of the company is 6.93.
Moreover, 193 forestry proposals are awaiting clearances either at MoEF (Ministry of Environment and
Forests) or at the state levels, it had said.
CIL, which accounts for over 80 per cent of the country's coal production, missed its output target of 482 MT in
the last fiscal. It produced only 462 MT.
President Pranab Mukherjee, in his address to the joint session of Parliament on June 9, said: Reforms in the
coal sector will be pursued with urgency for attracting private investment in a transparent manner.
With this, he revived the debate on privatisation in the coal sector. Different interpretations of privatisation
are emerging, including:
-- a proposed amendment to the Coal Nationalisation Act, which will end Coal Indias monopoly and allow
private players to mine;
-- privatise Coal India, or
-- split the company into three or four entities
Coal India has not been able to cater to the demands of the power sector. The Central Electricity Authoritys
data, as on June 18, show that 48 out of 100 coal-based power plants have critical levels of just a weeks coal
stocks.
This does not mean coal is not available in the country. The problem is with mining. Indias coal reserves are
put at nearly 250 billion tonnes the fourth largest in the world.
Technical and capacity problems, coupled with delays in environmental clearance, are cited as the main
reasons for such critical stock levels. According to the Coal Ministry, demand was 769 million tonnes (mt) last
year against the domestic production of 564.76 mt, which necessitated imports.
The discussion on privatisation is also taking place at a time when the Government is in the process of
addressing the irregularities in coal block allocation by the previous regime. Even the previous Government
had talked about auction of coal blocks, but finally settled on allocation to various companies for captive use.
Privatisation debate
Does privatisation mean handing over coal blocks to private players for exploration for a specified period, with
royalty paid to the Centre and States, just like in the oil and gas sector? Or is it auctioning the resources to
private players, like telecom spectrum? The coal industry feels privatisation in this sector means selling blocks
in the open market and the Government earning royalty. The bidders will assess the market price and quote a
royalty rate that they are ready to pay the Government.
This is unlike the oil and gas sector, where the developers do not know the reserve estimates. In coal blocks,
one knows the reserves. One argument is that, for coal, the Government should specify the per-tonne royalty it
wants.
End-users
Right now, there is private participation, but with the end-users already assured. In an end-user tie-up, the
entity operating the mine needs to invest in end-user plants, have expertise in the segment and factor in the
economics of the end-use plant during the bidding. Coal industry players say that, as in the case of iron ore,
limestone and gold mines, in coal-mining too, the miner should not be weighed down with a firm end-use
agreement.
India has merchant mines for all minerals except coal. At present, the Government is only considering
auctioning it to end-users. Persons from the industry feel the Government has to make it open for merchantminers too.
Lesson from other sectors
In the oil and gas sector, under the New Exploration Licensing Policy (NELP), the Government puts on offer
areas for players to explore and tap. The winners, who qualify after meeting the technical and financial
parameters, sign a production-sharing contract (PSC) with the Government, while the mineral resource still
belongs to the Government.
NELP allows pricing of crude oil and natural gas discovery on a market basis, while natural gas pricing needs
the Governments approval. The award of exploration blocks are governed by PSC cost recovery up to 100 per
cent.
But constant tinkering with the contracts by the Government has resulted in many players moving away from
the sector. The Government itself is revisiting the PSC to make it simpler for investors.
In the telecom arena, the Government owns spectrum, which it auctions to private players to provide various
services. Such auctions have been successful, with the Government netting over 1.5 lakh crore.
Earlier, spectrum was allocated on a first come, first serve (FCFS) basis. But this failed because certain
loopholes allowed departments to interpret rules. For instance, in 2G spectrum, the FCFS rule was twisted by
the telecom ministry to favour some private companies. The DoT reportedly changed the criteria of FCFS from
the date of application to the date of paying licence fee.
Considering the experience of these two sectors, it would be better if the Government auctions coal blocks to a
private player to mine for a specified period. The players, in turn, will sell in the open market at a price fixed by
the Government, say analysts.
"The centre should provide efficient legal assistance to the state and to the affected parties so that the NGT is
halted in its tracks from causing deep social unrest, economic despondency and increase in insurgency
activities," Pala said in a letter to Modi.
Terming the NGT's ban "iniquitous and harsh", the Congress Lok Sabha member said the ban was imposed
without providing alternative employment or economic engagement for the coal mine owners and labourers.
"The NGT order has affected coal mine owners and labourers. Migrant labourers, who are dependent on coal
mining, have been pushed to a state of destitution wherein some have even sold off their children," Pala said.
He also informed Modi that several cement plants in Meghalaya and in neighbouring Bangladesh, which are
dependent on coal from the state, have come to a standstill, causing economic blackout.
Meanwhile, Meghalaya Chief Minister Mukul Sangma Monday met Union Home Minister Rajnath Singh and
requested the constitution of a boundary commission to "re-examine and re-define" the inter-state boundary
between Meghalaya and Assam.
The four-decade-old boundary dispute between Meghalaya and Assam has witnessed a spate of unrest in
recent past.
During the meeting, Sangma also urged the home minister to sign a final settlement agreement with the A'chik
National Volunteers' Council (ANVC), a rebel outfit operating in the Garo Hills region.
The ANVC has scaled down its demand for a separate Garoland state to the formation of an autonomous
council.
The chief minister sought additional funds of Rs.28.8 crore under the Modernisation of Police Forces Scheme
for weapons, ammunition, equipment, clothing and communication support for the State Special Forces Unit.
US, Australia to see more metallurgical coal cuts on weak prices: Cowen
24 Jun 2014- Source: Platts
The US will likely see more cuts to metallurgical coal mining capacity and Australia is also expected to make
curtailments with over 25% of Queensland's coking coal industry estimated to be operating a loss, investment
bank Cowen said Monday.
Concerns about oversupply and weak pricing in seaborne met coal markets were highlighted Friday at a coal
industry event in New York, Cowen said. This led Cowen analyst Daniel Scott to remain more cautious on the
sector in the near and intermediate term.
Cowen expects only a gradual price recovery in coking coal.
"Our gradual recovery thesis for met coal is still intact. The prevailing sentiment from presenters was an
apparent pricing bottom, but with flowing seaborne volume there is little reason to expect a snap back
recovery," Cowen said in a note.
Weakness in iron ore pricing -- with the Platts IODEX assessment for 62% Fe fines near a two-year low -- and
a stronger Australian dollar are pressuring Australian miners, it said.
Cowen said there was now potential for renegotiation, with the railroads on previously signed take-or-pay
arrangements.
"These contracts have been one of the primary reasons for the global excess and while the railroads maintain
legal standing in existing contracts, an amendment to alleviate forced volumes may be in their best interest
over the long term," it said.
Also in the Atlantic market Monday, on the globalCOAL screen a 50,000 mt July cargo for Rotterdam with US
optionality traded at $70.85/mt, up 35 cents from Friday's trade.
Platts on Monday assessed the spot price of 6,000 kcal/kg NAR (about 11,300 Btu/lb) coal for delivery into
Amsterdam, Rotterdam and Antwerp within the next 15-60 days at $71.15/mt, up 15 cents from Friday.
Monday's CIF ARA delivered European assessment market the end of a four-day bear-run, despite general
market sentiment remaining pessimistic, sources said.
In the US gas market, NYMEX July natural gas futures settled 8.5 cents lower Monday to $4.446/MMBtu as
continued above-average weekly storage injections are expected and a less-supportive temperature outlook
than a day ago weighed on the market.
Tim Evans, analyst at Citi Futures Perspective said the updated forecasts which are "somewhat cooler" will
allow for above-average storage injections to continue "at least though the week ending July 11."
The Powder River Basin produces roughly 40 percent of the nations coal, almost exclusively from public
lands, and is one of the countrys major oil and natural gas fields.
BLMs Buffalo Field Office released its draft resource management plan and supporting environmental impact
statement for public review in June 2013. Following the release of the draft RMP/EIS, the BLM received 134
public comment letters and is currently revising the document, as appropriate, based on these comments. A
notice of availability announcing the release of the proposed RMP and final EIS is anticipated to be published
in the Federal Register on Aug. 1. Publication of the NOA will initiate a 30-day protest period.
Exports from the U.S. in April fell by 32 percent from a year earlier, Garvey said. Overseas shipments may
total less than 40 million tons this year compared with 51 million tons in 2013, as U.S. coal-based power
generators increase their consumption.
Any reduction in U.S. supplies should be covered by an expected 7 percent increase in Colombian exports to
78 million tons in 2014 and of about 9 percent to 85 million tons in 2015, according to the report.
The annual rate of increase in Chinese coal demand is forecast to drop to 1.7 percent in 2014 from 5.8 percent
in 2013 and 31 percent in 2012, Garvey said. Coal-fired power may account for almost 80 percent of total
generation this year, compared with more than 80 percent in both 2011 and 2012, he said.
China's Shenhua asking buyers for help to reduce coal stocks: sources
24 Jun 2014- Source: Platts
China's largest coal producer Shenhua Group is trying to persuade traders and utilities to buy more coal in a
bid to reduce inventories at ports as relatively high stocks at utilities and robust hydropower production
continue to weigh on the market, market sources said Monday.
A manager at one large utility said it has sent several vessels to Huanghua port to help ease the glut after
receiving Shenhua's request.
A source at another power plant in southern China said it had received a similar request from Shenhua a few
days ago, and noted there were currently four vacant loading berths available at Huanghua port.
Coal stocks at Huanghua port totaled 2.21 million mt June 18, up a sharp 68.2% from the end of April when
Shenhua raised prices Yuan 5/mt. Qinhuangdao port's inventory hit 7.15 million mt last Friday, the highest
since March 10.
Rising temperatures in recent weeks has boosted demand for coal-fired electricity but this has not been
enough to stimulate buying interest from coastal utilities as hydropower output and utility stocks are relatively
high.
Speculation last week about a possible price cut by Shenhua also dampened market sentiment, with many
traders and utilities maintaining a negative outlook for the near term.
Given the sluggish demand and overstocked inventory, analysts believe that Shenhua and other major
producers will most likely lower prices in late June or early next month.
Utility sources said Shenhua has been selling 5,500 kcal/kg NAR coal at about Yuan 510/mt and might reduce
the price to Yuan 505/mt in July.
The Fenwei/Platts CCI1 Index for 5,500 Kcal/kg NAR coal traded at Qinhuangdao port, a benchmark for
domestic spot market, fell Yuan 6 week on week to Yuan 511.50/mt last Friday.
Shenhua's coal output in May was down 5.6% year on year at 25.2 million mt and sales down 13.8% at 38
million mt due to sluggish demand, according to a company filing to the Shanghai Stock Exchange.
Fenwei Energy is a leading provider of coal market information in China.
Mississippi-inspired plan
Last month Colombia said it is planning to dredge its biggest river, Magdalena, which could boost coking coal
output fivefold.
According to the government agency, the project could potentially worsen a global oversupply of the
steelmaking ingredient, but it will help reduce the cost of transporting commodities and other goods to the
Caribbean coast by as much as 50% the actual rates.
The venture is loosely modelled on a 19th Century engineering project in the Mississippi River, which helped
lift the US coal industry.
Some of the world's top mining companies have operations in Colombia, including Anglo American (LON:AAL)
and BHP Billiton (ASX:BHP), which jointly own Cerrejon, the country's largest coal producer.
fossil fuel, the same restriction it applies towards companies that derive revenue from pornographers, weapon
makers, tobacco and alcohol.
"KING COAL" UNDER PRESSURE
To reach Wallace's farm, drivers pass through a police checkpoint, where vehicles are searched for ropes and
chains that could be used to climb trees or lock onto mining equipment - traditional guerrilla protest tactics
used against coal mines.
Until now, protesters have faced an uphill battle to rally the wider Australian population against the biggest
names in the coal sector, including Rio Tinto and Peabody Energy Corp.
Known as "King Coal" in Australia, tens of thousands of workers are employed in collieries and whole towns
rely on mines for their existence. More than half the world's steel-making coal, worth A$40 billion a year,
comes from Australia.
Australian Prime Minister Tony Abbott is a staunch supporter of coal and plans to introduce legislation on July
1 to repeal a tax on carbon emissions, unswayed by U.S. President Barack Obama's call for a 30 percent drop
in carbon emissions by zeroing in on coal plants.
But a corporate backlash against coal is now having an impact where protesters have failed, adding pressure
to a sector already hit by falling coal prices, 12,000 job losses since 2012, and stiffer competition from
countries like Indonesia, where wages are lower and supply abundant.
"The concerted, well financed, and internationally coordinated campaign against fossil fuel producers carries
with it great dangers and the potential to impose huge costs on the Australian economy," according to the
Minerals Council of Australia, the industry's main lobby group.
Banks and organisations like 350.org and Market Forces, which track investments by financial institutions and
the effects on the environment, are increasingly aligning with the anti-coal divestment movement.
Hunter Hall International, which manages $1 billion in assets, says it is ending fossil fuel investments.
Deutsche Bank, Germany's biggest bank, has declared it will not finance any of the multi-billion-dollar
expansion work for a coal port near Australia's World Heritage-listed Great Barrier Reef. HSBC and Royal
Bank of Scotland have also stated an unwillingness to provide funding.
ICE CREAM PROTEST
The anti-coal movement has even enlisted giant U.S. ice cream maker, Ben & Jerry's, owned by Unilever,
which dispenses free cones around Australia to draw attention to plans for dredging near the Great Barrier
Reef for the coal port.
"Using business as a tool for social and environmental change is just as important as sourcing the best
ingredients to make ice cream," says company spokeswoman Kali Swaik.
Since a divestment campaign began last year, Australian bank customers have withdrawn A$200 million ($188
million) in loans and deposits from the nation's "Big Four" banks, National Australia Bank, Commonwealth
Bank of Australia , Westpac Banking Corp and Australia and New Zealand Banking Corp, according to Market
Forces data.
"People like me who are worried about increasing global warming are pulling our money out and we don't want
to be banking with a bank that's supporting it," says Dr Helen Redmond.
Redmond moved her account from CBA last year and leads a divestment movement, 'Doctors for the
Environment Australia', to persuade doctors and medical students to transfer money out of banks financing
fossil fuel projects.
Activists this month claimed a victory after Whitehaven Coal agreed to halt clearing in the Leard Forest during
the winter hibernation period for bats, owls, and other wildlife.
The campaign is best known for the incident last year when campaigner Jonathan Moylan sent out a hoax
email to media claiming to be from ANZ announcing the bank was withdrawing an A$1.2 billion loan for the
project.
The hoax temporarily wiped A$314 million from Whitehaven's market value when investors panicked and
dumped the stock.
Moylan was arrested and is due to stand trial on June 30.
"The government and the coal companies see him as a criminal, but to us he's a hero," said Murray Drechsler,
one of the protesters camped on Wallace's land.
for a range of other payments that would be required for such a calculation and assistance includes items that
would need investigation beyond the scope of this report for inclusion in formal cost-benefit analysis.
Dr Denniss said Queensland funding and assistance provided to the minerals and fossil fuel industries in
2013-14 was similar to the amount spent on disability services and capital expenditure on hospitals.
The argument that these projects benefit Australia is flawed. The Reserve Bank of Australia has said much of
the benefits and profits of mining expansion are going offshore, with estimates suggesting foreign interests
effectively own four fifths of Australian mining operations, he said.
The institute says "assistance takes many forms", such as direct cash payments, discounted access to
services such as rail, and infrastructure projects that "wholly or partly" benefit mining and fossil fuel projects.
The institute says while estimates of federal assistance to these industries have been made, no similar
research exists for state (or local government) expenditure probably due to the difficulties in sourcing data from
those tiers of government.
Of all states, Queensland taxpayers are providing the greatest assistance by far with a total of $9.5 billion,
followed by Western Australia at $6.2 billion.
The Queensland government spent A$831 million on the Goonyella-Abbot Point Expansion, mainly between
2010 and 2012. The project, located in central Queensland's Bowen Basin is often referred to as the missing
link project, as it connected two coal railway systems. It enables coal mines that were previously only able to
ship coal out of Hay Point, near Mackay, to rail coal to Abbot Point near Bowen.
The report also says those hailing rail privatisations in Australia as a successes haven't always counted the
subsidies put into the companies before they were sold.