Wednesday, April 17, 2013

Coal Sector Still Watching China and India

The coal sector’s attention continues to be riveted on China and India.

Reuters reported that Australia’s Macquarie believes India could be the “savior” of the global thermal coal market.

The bank expects Indian coal imports to rise to about 107 million metric tons (MT) in the 2013 fiscal year, a 30-percent rise.

However, enthusiasm should be tempered, the bank said, as India’s power sector is developing slowly. Indian power generators are suffering due to older infrastructure and a lack of economic incentives for long-term power supply.

The nation therefore has a relatively low per capita electricity consumption of just 800 KWh and is unlikely to achieve coal imports on par with China, where power consumption is 3,500 KWh per capita.

Meanwhile, India is making moves to increase its domestic thermal coal output. This month, the country’s largest power producer and top coal consumer, NTPC (BSE:532555), announced that it is pushing the government to create a Coal Regulatory Authority, according to the Deccan Chronicle.

NTPC believes the new regulatory body is necessary if private investment in the Indian coal sector is to be increased. The company noted that the regulator will help set fair prices for domestic coal and will ensure that reserves are allocated transparently.

Such a move could be the first step toward ramping up flagging Indian coal production.

The sector got good news on that front this month from India’s largest coal producer, Coal India (BSE:533278). The company shipped 120.5 million MT of coal in the fourth quarter of 2012, a 9.2-percent increase compared to the previous year, according to Reuters.

Coal India’s production has been flat for most of the last two years and the company missed its production targets last year.

The firm’s overall profits rose 9 percent on the quarter.

The thermal coal market’s other big buyer — China — appears to be increasingly looking to US supply.

Traders interviewed by Platts said that current market prices favor Chinese imports of US high-sulfur coal over closer-at-hand Australian coal.

The publication notes that US high-sulfur coal is currently being offered at $95/MT.

Colombia underperforms

Elsewhere in the world, Colombia — the fourth-largest thermal coal exporter globally — announced this month that its production in 2012 grew 3.96 percent from a year earlier, Platts reported.

Colombia produced 89.199 million MT of coal during the year. Its output was below forecasts from state energy agency ANM, which had predicted 97 million MT of coal output in 2012. Colombia’s mining and energy ministry had targeted 93 million MT for the year.

Production lagged due to labor strikes that have taken place at mines and associated railways during the past year. Around 85 percent of Colombian thermal coal exports are currently being affected by labor unrest and environmental closures at mines owned by Drummond.

Traders, however, believe the Colombian situation will soon be fixed.

Price round-up

In February, US CAPP coal prices fell to year-to-date lows — or close to them — for a variety of traded coal products, according to Platts.

Prices for coal with physical delivery in Q2 2013 are at an average of $60.75 per short ton. The forward curve is slightly more bullish, with Q3 2013 coal going for $63.05. Q4 2013 is selling for $65.30.

On the multinational scene, Rio Tinto’s (ASX:RIO,LSE:RIO,NYSE:RIO) recent massive write-down on coal in Mozambique hasn’t scared India’s Jindal Power & Steel (BSE:532286).

The company said this month that it expects to move the first coal from its Mozambican mines to port in March, according to The Economic Times.

Jindal plans to produce 1 million MT of thermal and coking coal from Mozambique this year. The company has plans to ramp up to 10 million MT per year over the next five years.

However, the company’s country head, Manoj Gupta, admitted that Jindal’s ability to scale up production will depend on Mozambique’s underdeveloped infrastructure. Transport infrastructure was a major reason for Rio Tinto’s project difficulties in the country.

Across the Indian Ocean in Indonesia, Realm Resources (ASX:RRP) is moving forward with its Katingan Ria coal project, according to a release from the company this month.

The company said that resources at the project have grown to 50 million MT after recent drilling. That will support the company’s planned 10-year mine life.

Realm intends to develop the mine after receiving a necessary forestry permit. The permit is expected in the second half of 2013.

Cardero Resource (TSX:CDU,AMEX:CDY) is looking to move its Carbon Creek metallurgical coal project in British Columbia to the next level.

The company announced this month that it raised a total of $7.7 million via a non-brokered private placement and flow-through offering. Cardero will also look to finalize a matching debt facility with Sprott Resource Lending Partnership.

The funds will be used to complete a bankable feasibility study on Carbon Creek later this year.

Development hopeful Prophecy Coal (TSX:PCY,OTCQX:PRPCF) is also going to the market. The company announced that it is seeking to raise $8.4 million by issuing 60 million units at $0.14 each.

Each unit consists of one share and 0.75 of a share purchase warrant. The proceeds will be used for Prophecy’s Chandgana coal deposit and an associated proposed power plant.