PETALING JAYA: The recent consolidation moves of several major coal mining companies, including the proposed merger of Glencore International plc and Xstrata plc, will not create an oligopoly in the global coal mining industry, said analysts.
This is because even though the merged entities, such as Glencore-Xstrata International and the revamped Bumi plc, will become some of the largest coal mining companies in the world, they do not hold majority share of the coal supply globally. There are many smaller, independent players in the industry, said an analyst with a bank-backed investment research.
“The coal price internationally depends much on the supply and demand of the commodity, and we don’t expect the consolidation to create an oligopoly in the industry as they (the merged entities) do not command the majority supply of coal.
“We expect coal price to stay stable this year at around US$110 (RM330) to US$115 per tonne, at least in the first half of 2012, as the economy of China and India is expected to slow down this year, compared to last year. This will in turn cool the demand for thermal coal,” the analyst told The Edge Financial Daily.
This is good news to Tenaga Nasional Bhd (TNB) as it has been paying US$110 per tonne to coal suppliers from Indonesia — its major source of thermal coal, according to a source close to the company. A stable price in that range for the next six to 12 months would be best for TNB’s cost management, according to an industry observer.
In the three months to Nov 30, TNB’s fuel costs consisted of RM1.83 billion in coal, RM1.41 billion in natural gas, RM593.3 million in crude oil and RM413.8 million in distillates.
The costs of crude oil and distillates, as a portion of TNB’s fuel costs, increased by over 100% during the period from a year ago, due to the shortage of gas supply as a result of the shutdown of Petronas’ re-gassification plant.
However, coal price could sway either way. While further development of shale gas in North America could provide alternative fuel to coal and depress its price, the prolonged floods in Queensland, Australia could reduce supply and shore up coal price, according to a market trader.
“The development of shale gas in North America has been tremendous. The US has started to export shale gas, as opposed to being a net importer previously. The increased supply of shale gas could depress the price of natural gas and coal, thus reducing the cost for TNB and other independent power producers (IPPs),” said the trader.
His view was, however, rebutted by an analyst with a local bank. According to this analyst, there are no linked gas pipes from North America to this part of the world. The development of shale gas is limited to North America and will not affect the price of natural gas in Asia.
“The price of natural gas internationally has started to decouple (from North America), as the price is arguably lower in North America because the region has ample supply of natural gas but somewhat low demand.
“However, in Asia, the price is high as the economy is growing fast and the shift from nuclear-powered plants to natural gas-powered ones in Japan will continue to support the price,” the analyst told The Edge Financial Daily.
In a research note published yesterday, HwangDBS Vickers Research said the bid for the second generation IPPs could create stronger competition among the existing ones such as YTL Power International Bhd, Malakoff Bhd, Sime Darby Bhd and Tanjong plc.The analyst said TNB will benefit the most from lower capacity payment pricing and larger supply.
“Existing players may have first mover advantage as their plants may allow them to offer lower average pricing for the new bids. They also have 15 to 20 years of technical expertise and strategic plant locations.
“Any existing IPP that wins a bid could see earnings potential which is not reflected in current valuations,” she added.
TNB closed 4 sen or 0.67% lower yesterday to RM5.95. Its share price has dropped by up to 16.5% since reaching its 52-week high of RM7.11 on May 31, 2011.
However, it has been on an increasing trend since reaching its lowest point in a year on Sept 26, 2011 at RM4.99.
This article appeared in The Edge Financial Daily, February 9, 2012.
This is because even though the merged entities, such as Glencore-Xstrata International and the revamped Bumi plc, will become some of the largest coal mining companies in the world, they do not hold majority share of the coal supply globally. There are many smaller, independent players in the industry, said an analyst with a bank-backed investment research.
“The coal price internationally depends much on the supply and demand of the commodity, and we don’t expect the consolidation to create an oligopoly in the industry as they (the merged entities) do not command the majority supply of coal.
“We expect coal price to stay stable this year at around US$110 (RM330) to US$115 per tonne, at least in the first half of 2012, as the economy of China and India is expected to slow down this year, compared to last year. This will in turn cool the demand for thermal coal,” the analyst told The Edge Financial Daily.
This is good news to Tenaga Nasional Bhd (TNB) as it has been paying US$110 per tonne to coal suppliers from Indonesia — its major source of thermal coal, according to a source close to the company. A stable price in that range for the next six to 12 months would be best for TNB’s cost management, according to an industry observer.
In the three months to Nov 30, TNB’s fuel costs consisted of RM1.83 billion in coal, RM1.41 billion in natural gas, RM593.3 million in crude oil and RM413.8 million in distillates.
The costs of crude oil and distillates, as a portion of TNB’s fuel costs, increased by over 100% during the period from a year ago, due to the shortage of gas supply as a result of the shutdown of Petronas’ re-gassification plant.
However, coal price could sway either way. While further development of shale gas in North America could provide alternative fuel to coal and depress its price, the prolonged floods in Queensland, Australia could reduce supply and shore up coal price, according to a market trader.
“The development of shale gas in North America has been tremendous. The US has started to export shale gas, as opposed to being a net importer previously. The increased supply of shale gas could depress the price of natural gas and coal, thus reducing the cost for TNB and other independent power producers (IPPs),” said the trader.
His view was, however, rebutted by an analyst with a local bank. According to this analyst, there are no linked gas pipes from North America to this part of the world. The development of shale gas is limited to North America and will not affect the price of natural gas in Asia.
“The price of natural gas internationally has started to decouple (from North America), as the price is arguably lower in North America because the region has ample supply of natural gas but somewhat low demand.
“However, in Asia, the price is high as the economy is growing fast and the shift from nuclear-powered plants to natural gas-powered ones in Japan will continue to support the price,” the analyst told The Edge Financial Daily.
In a research note published yesterday, HwangDBS Vickers Research said the bid for the second generation IPPs could create stronger competition among the existing ones such as YTL Power International Bhd, Malakoff Bhd, Sime Darby Bhd and Tanjong plc.The analyst said TNB will benefit the most from lower capacity payment pricing and larger supply.
“Existing players may have first mover advantage as their plants may allow them to offer lower average pricing for the new bids. They also have 15 to 20 years of technical expertise and strategic plant locations.
“Any existing IPP that wins a bid could see earnings potential which is not reflected in current valuations,” she added.
TNB closed 4 sen or 0.67% lower yesterday to RM5.95. Its share price has dropped by up to 16.5% since reaching its 52-week high of RM7.11 on May 31, 2011.
However, it has been on an increasing trend since reaching its lowest point in a year on Sept 26, 2011 at RM4.99.
This article appeared in The Edge Financial Daily, February 9, 2012.
