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Global Thermal Coal Markets : Putting India into context

Global Thermal Coal Markets : Putting India into context

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India thermal coal_markets India thermal coal_markets Presentation Transcript

  • Global Thermal Coal Markets: Putting India into context 12th Annual Coal Markets (IBC Asia) Singapore, 25-26 February 2014 Trusted commercial intelligence www.woodmac.com
  • Global Thermal Coal Markets: Putting India into context 1. What is driving India’s thermal coal import demand? 2. Power sector liberalization and fuel risk management 3. Domestic coal production: will reforms accelerate now? 4. Seaborne thermal coal pricing outlook 5. Summary and conclusions 2 Trusted commercial intelligence © Wood Mackenzie
  • Pacific basin thermal coal seaborne demand has been outpacing Atlantic basin demand… use of low rank coals is increasing What drives India’s thermal coal import demand? Seaborne thermal demand by basin Pacific demand by country Pacific demand by rank 800 80% 700 700 70% 600 600 60% 500 500 90% 700 600 400 40% Mt Mt 50% Pacific % 500 Mt 800 800 400 400 300 300 200 300 200 100 100 0 0 30% 200 20% 100 10% 0 0% Pacific Source: Wood Mackenzie Coal Market Service 3 Trusted commercial intelligence © Wood Mackenzie Pacific % Other Pacific Japan China India Australia high ash Australia bituminous Sub-bit/lignite Atlantic Bituminous others View slide
  • High ash domestic coal supply in India is a major constraint (1/3) ~50% of thermal production is >35% ash levels. Domestic coal has difficult washing characteristics 2013 domestic thermal ash curve 50 45 40 Ash content % 35 30 25 20 15 10 5 0 0 50 100 150 Domestic thermal coal production (Mt) Source: Wood Mackenzie Coal Market Service 4 Trusted commercial intelligence © Wood Mackenzie 200 250 300 Ash limit for power utilities 350 400 450 Average ash - seaborne markets View slide
  • Domestic thermal coal price ex-mine is low but delivered cost to distant power plants increases significantly due to high transportation costs (2/3) Domestic Thermal Coal Prices (Delivered West India) Domestic thermal coal cost component (Delivered West India) 80 70 Value, US$/t 60 50 54% 40 30 20 33% 10 0 Ex-mine Washing & Royalty processing and taxes Road freight 9% Rail freight Delivered cost Coal cost 5% Royalty and taxes Road freight Rail freight Note: The analysis here shows domestic washed thermal coal. As per government regulation, raw coal needs to be washed to reduce ash up to 34% (max) for supply to power plants located 1000 km or more away from the source. Source: Wood Mackenzie Coal Market Service 5 Trusted commercial intelligence © Wood Mackenzie
  • Domestic production struggling to meet demand; imports are rising rapidly (3/3) But there are challenges… Domestic coal supply flat, demand rising rapidly Affecting utilization levels (especially for newly commissioned projects) 600 160 500 140 78% 76% Capacity, GW 300 200 74% 100 72% 70% 80 68% 60 66% 100 40 64% 0 20 62% 2008 2009 2010 2011 2012 60% 2013 0 58% Coal demand for power 2008 Domestic supply for power Coal-fired capacity Source: Wood Mackenzie Coal Market Service 6 Trusted commercial intelligence © Wood Mackenzie 2009 2010 2011 2012 2013 Capacity factors Capacity factor, % 120 400 Mt 80%
  • Weak economic growth is the biggest challenge; pressuring trade deficit and the local currency (1/3) GDP growth down from > 10% in 2010 to < 5% last year; affecting power demand growth India’s foreign trade position in USD Billion India’s foreign trade position in Indian Rupee Billion 50 3000 40 2500 2000 30 INR Billion USD Billion 1500 20 10 0 1000 500 0 -10 -500 -20 -1000 -30 April 2011 Net trade Sept 2013 Exports Source: Reserve Bank of India 7 Trusted commercial intelligence © Wood Mackenzie Imports -1500 April 2011 Net trade Sept 2013 Exports Imports
  • Thermal coal import volumes risen rapidly in the past five years – Rupee depreciation inflated the import bill (2/3) India’s thermal coal import volume and value 3000% Rupee depreciation has increased the cost of coal imports despite declining prices in the seaborne market Index = 100% in 2004 2500% 2000% 1500% 1000% 500% 0% 2004 2005 2006 Volume Source: GTIS, Wood Mackenzie Coal Market Service 8 Trusted commercial intelligence © Wood Mackenzie 2007 2008 2009 Value - Million USD 2010 2011 Value - Million INR 2012 2013
  • Slow pace of reforms cause of power sector woes (3/3) Poor financial health of power distribution utilities a deterrent to implement reforms Rising electricity sales, rising losses Gap widening between cost of supply and revenue received 14 700 500 500 8 400 6 300 4 400 300 Paisa/kwh 10 Sales, TWh 600 Electricity Utilities Losses, US$ Bn 12 200 100 200 0 2 Cost of supply 100 Revenue Gap -100 0 0 2008 2009 2010 2011 2012 Gap -200 State Power Utilities' Losses Electricity Sales Source: CEA, Wood Mackenzie Coal Market Service 9 Trusted commercial intelligence © Wood Mackenzie 2010 2011 2012
  • ~ 40 GW capacity added in past three but running at low utilization levels. Another 23 GW coming soon… Coal-fired generation capacity, MW 18000 70 GW contracted and regulated tariff – FUEL PASS THROUGH FY 2010 Onwards  Rapid capacity expansion.  Domestic coal production and power demand declined.  Aggressive tariff bids worsened the situation.  Merchant power market failed to take off. 16000 14000 12000 10000 8000 6000 4000 2000 0 Pre - 2010 2010 Contracted, regulated tariff Source: CEA, Wood Mackenzie Coal Market Service 10 Trusted commercial intelligence © Wood Mackenzie 2011 2012 2013 Contracted, competitive tariff 2014 Uncontracted 2015
  • India thermal coal demand components – the big picture Strong growth in both coal- and non-coal power generation capacity. Total thermal coal demand to reach 920 Mt by 2020 and 1,818 Mt by 2035, respectively, from 685 Mt in 2013 Overwhelming contribution from power sector (TWh) Installed capacity is not disappearing (GW) 700 4,000 3,500 600 3,000 500 2,500 GW TWh 400 2,000 300 1,500 200 1,000 100 500 0 0 2008 Coal 2011 2014 Natural Gas 2017 2020 Nuclear Source: Wood Mackenzie Coal Market Service 11 Trusted commercial intelligence © Wood Mackenzie 2023 Hydro 2026 2029 Renewable 2032 Oil 2035 Other 2008 Coal 2011 2014 Natural Gas 2017 2020 Nuclear 2023 Hydro 2026 2029 Renewable Oil 2032 2035 Other
  • India’s coal market to bifurcate; coastal and inland, but domestic coal reforms hold the key India will build more power plants designed for import coal Import share will increase despite growth in domestic output 1,600 2012 28% 1,400 24% 0 - 5 GW 5 - 10 GW 2030 20% 1,000 16% 800 12% 600 0 - 5 GW 5 - 10 GW 10 - 15 GW 15 - 20 GW > 20 GW Source: Wood Mackenzie Coal Market Service 12 Trusted commercial intelligence © Wood Mackenzie 8% 200 0 GW 400 4% 0 0% 2008 2012 2016 2020 2024 2028 2032 Domestic coal production, left axis Thermal coal imports, of total demand, right axis Imports, of total demand 0 GW Domestic production, Mt 1,200
  • What is the outlook of seaborne thermal coal prices? 13 Trusted commercial intelligence © Wood Mackenzie
  • Extended period of weak coal pricing due to chronic oversupply conditions in the seaborne thermal market Supply by mine status versus seaborne demand (Mt) Thermal coal price forecast (Real US$/t 2013) $160 2,500 2013-2022: nearly flat prices due to abundance of supply meeting growing, but slowing, thermal demand $140 US$/t, Real 2013 (Original energy values) 2,000 Mt 1,500 1,000 500 2023-2035: steadily rising prices as new supply and infrastructure development required to satisfy demand $120 $100 $80 $60 $40 $20 0 $0 Probable & Possible Capacity Highly Probable Capacity Operating Capacity Seaborne Demand Source: Wood Mackenzie Coal Market Service 14 Trusted commercial intelligence © Wood Mackenzie 2008 2012 2016 2020 2024 2028 2032 FOB Newcastle @ 6,300 kcal/kg GAR, Market FOB HA Newcastle@ 5,500 kcal/kg NAR FOB Indonesia EnviroCoal @ 5,000 kcal/kg GAR FOB Indonesia EcoCoal @ 4,200 kcal/kg GAR
  • Summary and Conclusions • Globally, thermal coal import demand will be driven by power generation needs in Asia, in particular by China and India. • Indonesia and Australia will continue to dominate the export markets. • Export thermal supply, if not rationalized, will continue to weigh in on prices. Longer-term, the price will need to rise to incentivise new production (project development). • India has both near-term and long-term implications: Near-Term Implications Longer-Term Implications • Weak economic situation, if continued, will adversely affect power demand growth. • We remain positive about India’s long-term potential as a large thermal coal importer (second to China). • Fuel risk has become a pass-through but doesn’t not provide major upside to coal imports as power demand is sensitive to tariffs. • Domestic coal sector reforms will accelerate coal production. • Low utilization levels of new power projects will create M&A opportunities. • Reduction in transmission and distribution losses will reduce power tariffs and help demand growth. 15 Trusted commercial intelligence © Wood Mackenzie
  • Disclaimer Strictly Private & Confidential  This presentation has been prepared for delivery at the 12th Annual Coal Markets conference (IBC Asia) in Singapore on 25 February 2014, by Wood Mackenzie Limited. The report is intended solely for the benefit of attendees and its contents and conclusions are confidential and may not be disclosed to any other persons or companies without Wood Mackenzie’s prior written permission.  The information upon which this presentation comes from our own experience, knowledge and databases. The opinions expressed in this report are those of Wood Mackenzie. They have been arrived at following careful consideration and enquiry but we do not guarantee their fairness, completeness or accuracy. The opinions, as of this date, are subject to change. We do not accept any liability for your reliance upon them. 16 Trusted commercial intelligence © Wood Mackenzie
  • Europe Americas Asia Pacific +44 131 243 4400 +1 713 470 1600 +65 6518 0800 Email Website contactus@woodmac.com www.woodmac.com Wood Mackenzie* is a global leader in commercial intelligence for the energy, metals and mining industries. We provide objective analysis and advice on assets, companies and markets, giving clients the insight they need to make better strategic decisions. For more information visit: www.woodmac.com *WOOD MACKENZIE is a Registered Trade Mark of Wood Mackenzie Limited