Of course, everyone’s a winner when judgements start off with prose like this:
Coal is king and paramount Lord of industry is an old saying in the industrial world. Industrial greatness has been built up on coal by many countries. In India, coal is the most important indigenous energy resource and remains the dominant fuel for power generation and many industrial applications.
China’s energy consumption is legendary (okay, its everything consumption is legendary). More coal, oil, hydro, solar, and wind power than… than just about anyone. The coal numbers in particular are mind-boggling. By 2011 China was consuming almost as much coal (3.8bn tonnes) as the rest of the world combined (4.3bn tonnes).
The figures on oil consumption are almost as striking. They consume about 10m barrels a day; more than 10 per cent of world production. Read more
From the FT:
The board of Bumi Plc is weighing up severing ties with one of its Indonesian businesses as part of a restructuring aimed at reviving investor confidence in the controversy-hit London-listed coal miner… Read more
When commentators cast around for reasons to explain the strength of the Australian dollar in the face of falling iron ore and coal prices they all arrive at the same answer - haven bond buying by central banks/ sovereign wealth funds. In fact, we’ve also made that very point.
Forecasting is a tricky thing. The latest quarterly update from Australia’s Bureau of Resources and Energy Economics predicts iron ore prices will average A$101 a tonne in 2013:
… must come down.
What might the following index looked without the threat of war with Iran and/or the continued existence of the gold bug brigade? Read more
There are two ways that China’s economic future is viewed today.
First, there’s the China which is going to move coherently towards a more consumption-heavy economic mix — the oft-mentioned “rebalancing” that is needed to address its unusually capital-intensive economy. An oped by GK Dragonomics’ Andrew Batson says this means the China naysayers, focusing on the woes of Sany or growing coal stockpiles, are misguided: Read more
In the last week of June, the Dept. of Energy released data for April showing that natural gas generated the same amount of power as coal-fired plants for the first time in recent history. Each fuel contributed 32% of total electric generation.
That’s from CreditSights (full note in the usual place), and here’s the visual going back a few years: Read more
Australia is rich in iron ore, coal and copper … and its stock of hubris seems to be growing.
After a recent trip to the “quarry in China’s backyard” SocGen’s Dylan Grice is even more worried about its economy than he was beforehand. It seems a book describing Australia’s economic success as “a miracle” was the catalyst (more on that below). In a note to clients Grice is recommending shorting the aussie dollar. And, if you’re lucky enough to be Australian, stockpiling gold. Read more
Caterpillar, the world’s biggest maker of earthmoving equipment, has strengthened its presence in the mining machinery market by striking an $886m deal to buy ERA Mining Machinery, a Chinese manufacturer of underground coal-mining equipment, reports the FT. Buying ERA would enable Caterpillar to make further inroads into China where coal mine operators tend to prefer local brands over US equipment. The proposed acquisition builds on Caterpillar’ $7.6bn purchase last year of Bucyrus International, another maker of mining machinery. That deal transformed the company into the world’s biggest supplier of large mining equipment.
ArcelorMittal has pulled out of a $5bn joint bid for Macarthur Coal after deciding that the $1.2bn it was to have spent might have represented a step too far in the light of growing signs of global economic weakness, reports the FT. The surprise announcement means that Peabody Energy, the US coal business that was ArcelorMittal’s bid partner, will be free to take 100 per cent control of the Australian group. ”We are prepared to finance this acquisition solely through cash and debt, and at debt levels that are very manageable,” Peabody’s chief financial officer Michael Crews told analysts on a conference call, reports Reuters. The debt ratio would rise from a current 32 per cent to “mid 50″ per cent if it takes 100 per cent of Macarthur shares — remaining within target, he said.
Corporate governance is alive and well at ENRC.
Just weeks after the Kazakh miner said it was committed to a strong and independent board, it’s announced plans to buy a thermal coal producer from its founding oligarch trio. Read more
Is there any more Bumi Resources can do to make itself uninvestable to the average UK institutional investor?
It seems there is, albeit indirectly. Read more
Something was different at this year’s McCloskey Asia-Pacific Coal Summit, says Michael Parker at Bernstein:
Maybe it was the change of venue from Dalian to Beijing, but attendance by local Chinese participants was down and stage-rushing at the end of each presentation to hand out business cards was down too. For an industry that is in the midst of another year of record high prices, the mood was, well, down. Read more
Glencore has confirmed its interest in taking over South Africa’s Optimum Coal for $1.2bn, in a deal that would transform the company’s position at one of the world’s largest coal ports, reports the FT. Glencore and Cyril Ramaphosa, the South African billionaire, are prepared to offer R34 a share for Optimum, a second-tier domestic coal miner, in a deal valuing the company at R8.56bn ($1.2bn). This is Glencore’s first major takeover following its flotation, writes the Telegraph. It adds that in adherence with South African rules on black ownership, Glencore’s bid was made via an investor group and its local Black Economic Empowerment partner, Ramaphosa.
Glencore is eyeing a bid for Optimum Coal, the South African miner, as the world’s largest commodities trading house plans to use the current market turmoil for bargain-hunting, taking advantage of the recent falls in resource stocks, the FT reports. The group said there was a disconnect between fears about a double-dip recession and its own upbeat forecast for commodities prices and demand. The plans for purchases came as Glencore, which sold nearly $10bn in stock in May in a landmark initial public offering in London and Hong Kong, unveiled a 57 per cent rise in first-half profits to $2.45bn.
Anglo American is considering a counterbid for Macarthur Coal in an attempt to gatecrash a A$4.7bn (US$4.9bn) bid for the Australian coal group from Peabody Energy and ArcelorMittal, the FT reports. Earlier this month, Macarthur said it was open to offers that valued its business at nearly A$5bn after formally rejecting an “opportunistic” bid from Peabody Energy of the US and steelmaker ArcelorMittal. People familiar with the bid process said there were a number of interested parties, one of which was Anglo American. The mining group is said to be working with its traditional advisers, which include Goldman Sachs.
Australia’s Macarthur Coal refused to back an “opportunistic” $5.3bn bid by Peabody Energy and ArcelorMittal on Monday, Reuters reports, banking instead on a bidding war as it sought rival offers. Macarthur said it would continue talks with “a number” of interested parties after refusing to back a revised A$16 per share bid from Peabody, which was conditional on it closing the door to talks with other suitors. US-based Peabody Energy and ArcelorMittal, the world’s biggest steelmaker, will proceed with their A$15.50 a share bid for control after rejecting Macarthur’s proposal for an agreed deal if the offer was lifted to A$18 a share, Bloomberg reports. Shares in Macarthur, the world’s biggest producer of pulverized coal, rose 1.4 per cent to A$15.77 in early trade after Macarthur said it would not agree on the so-called “handcuff” bid conditions.
Workers at the world’s biggest source of copper, BHP Billiton’s Escondida mine in Chile, began striking late on Thursday, Bloomberg reports. The strike is planned to last 24 hours, leading to about 3,000 tonnes of lost copper production. Strikes are also planned in seven of BHP’s central Queensland coal mines in Australia, beginning next week, the news agency says. The industrial action in the flood-ravaged state is expected to drive coal prices higher.
wailing and gnashing of teeth name-calling and politicking Australia’s minority government on Sunday announced details of its carbon pricing scheme.
Planned for a mid-2012 start, the scheme would initially price CO2 emissions at $23 per tonne, rising 2.5 per cent a year for the first three years, before moving to a market mechanism. It would apply to the top 500 polluters, excluding the agriculture sector and light vehicles. Read more
BHP Billiton coking coal miners in Australia are striking on Tuesday and Wednesday for the first time in a decade, Bloomberg reports, raising fears of further price rises after floods earlier this year pushed prices higher. As many as 4,000 mine workers at the world’s biggest exporter of the steel-making material are carrying out six-hour stoppages over two days.
Few mainstream institutional investors have focussed on Vallar till now – we feel this could trigger their taking a closer look.
That’s Liberum Capital talking about Nat Rothschild’s original London-listed shell company, Vallar. (Its sister company Vallares was launched on Thursday). Read more
Adani Enterprises, India’s biggest coal importer, may sell shares in a unit that produces the fuel to international investors and use the proceeds to add energy assets, reports Bloomberg. The company may sell up to a 20% stake in Adani Mining in an IPO in London within the next two years, said Gautam Adani, billionaire chairman of Adani Enterprises. The Adani group aims to tap overseas investors keen to benefit from rising power demand in India and is buying coal mines to help feed its $20bn push to increase power generating capacity 10-fold in the country. The company has mining rights in Australia, Indonesia and India. An overseas listing will improve the company’s “capability to raise funds for further fuelling acquisitions,” Adani, 48, said in an interview in Mumbai on Tuesday.
The commodities rout confused a lot of people because it didn’t seem to have an obvious cause.
Analysts at Bank of America Merrill Lynch, however, are getting mystified about another element related to the slide. Why have coal prices remained largely unaffected? Read more
Arch Coal, the second-largest US coal producer, is boosting its position in higher-value metallurgical coal with an agreed deal to buy International Coal Group for $3.4bn in cash, reports the FT. The deal, the latest in a wave of US coal deals in recent months, is worth $14.60 per ICG share, a 32% premium to Friday’s closing price. It will make Arch the second-largest US producer of “met” coal and one of the 10 largest in the world. Prices for met coal, used in steelmaking, have risen sharply on world markets amid surging steel demand. DealBook says the transaction is not only a “bet on steel” but is also something of a vindication for investor Wilbur Ross who founded ICG. Lex adds that despite the rise of natural gas, it highlights the enduring appeal of a “well-located, big coal plant”.
Here’s a nice piece of research from Barclays Capital.
The UK bank has enlisted the help of a former nuclear safety employee to discuss events at Fukushima Daiichi, the Japanese nuclear plant hovering on the edge of meltdown. For what it’s worth, BarCap’s energy team doesn’t think there was an operator error at the plant — the force of the earthquake combined with the effect of the tsunami “simply exceeded what the plant was designed to withstand.” Read more
After New Zealand’s earthquake and Australia’s floods and cyclones — not to mention raging fires that preceded — anyone would think someone up there had it in for the Antipodes.
Despite the ravages of weather, however, Australia seems to be living up to its “Lucky Country‘ tag. Amid fears about the economic fallout from the weather disasters of December and January, the government on Wednesday reported 0.7 per cent quarterly growth. Softer than hoped for but not nearly as bad as some feared. Read more
China is in talks to build an alternative to the Panama Canal that would link Colombia’s Atlantic and Pacific coasts by rail – a move that Bogotá also hopes will spur Washington to push for Congressional approval of a US-Colombia free-trade pact, the FT reports. “It’s a real proposal … and it is quite advanced,” Juan Manuel Santos, Colombia’s president, told the FT in an interview. “There’s a proposal to build whole railway system that would even connect Venezuela with the Pacific,” he added. Colombia is the world’s fifth-largest coal producer, but most is exported via Atlantic ports even as demand is growing fastest across the Pacific.
Global miner Rio Tinto has extended its $3.9bn takeover offer for Mozambique-focused coal miner Riversdale Mining to March 4, amid signs that Riversdale’s second-biggest shareholder is holding up a deal, reports Reuters. The two-week extension came the same day that CSN, Brazil’s biggest steelmaking group, raised its stake in Riversdale to 19.9%, just below the threshold for a compulsory takeover offer. Riversdale’s shares fell to a low of A$15.77 and last traded flat at A$15.85, a 1% discount to Rio’s offer of A$16 a share, indicating that investors are not expecting CSN to counterbid. Instead investors appear to be concerned that Rio Tinto may not get to its minimum acceptance condition of 50.1% without the support of CSN. “The concern in the market will be that Rio will just walk away”, said one resources analyst told Reuters.
Steel prices have risen by more than a third in two months, stoking global inflationary pressures as food and energy costs have also soared, reports the FT. Floods in Queensland have severely disrupted global supplies of coking coal, a vital steelmaking ingredient, prompting manufacturers to stock up on steel. That has pushed the price of benchmark US hot-rolled coil steel 37% higher since early November to a two-year high of $783 a tonne, according to CRU, a consultancy. Spot cargoes of coking coal have traded as high as $350 a tonne – up 55% from quarterly contracts agreed at $225 just a few weeks ago. Iron ore, the other key ingredient in steel, is also rapidly nearing record prices, with benchmark grades delivered to China up 20% since the start of November at $178.30 a tonne.