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Sabyasachi Mishra, Tata International Singapore Pte Ltd - Securing and Sourcing Coal from Kalimantan Mines

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Sabyasachi Mishra, Tata International Singapore Pte Ltd delivered the presentation at IMM’s 2014 Kalimantan Coal Conference. …

Sabyasachi Mishra, Tata International Singapore Pte Ltd delivered the presentation at IMM’s 2014 Kalimantan Coal Conference.

The IMM’s Kalimantan Coal Conference brings together 120+ senior executives, decision makers from government, mining, infrastructure, shipping and supply sectors to discuss new policies and strategies for tackling the current and emerging issues within the burgeoning Kalimantan coal sector.

For more information about the event, please visit: http://www.immevents.com/kalicoalconference13

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  • 1. CASE STUDY: SECURING AND SOURCING COAL FROM KALIMANTAN MINES The 2nd Annual Kalimantan Coal 3-4 September 2013 Balikpapan, Indonesia
  • 2. Disclaimer: This report is prepared for general information. Opinions and estimates contained herein are subject to change without notice. The data and information herein provided is believed to be reliable but Tata International does not warrant for its accuracy or completeness. Tata International or any of its employees are not liable for any action taken by any party based on the above information. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Special note: Short-term trading on the basis of technical is a high risk and skill oriented venture and may result in huge losses also. Traders doing so are doing at their own risk. We are not responsible for any damages.
  • 3. Points to Cover Ø  Tata International (TIL) – A brief Introduction Ø  Global Coal Trade Snapshots Ø  India’s growing appetite for Coal Ø  Kalimantan has emerged as a major originator Ø  Supply Security – Challenges & Strategies
  • 4. TIL - A Brief Introduction Ø  TIL is the flagship trading arm of Tata Group with a turn over of USD 100 Billion + Ø  TIL just celebrated its 50th anniversary Ø  Trades in Minerals, Metals, Agro, Distribution and Leather verticals Ø  Coal forms a part of the Minerals vertical Ø  Group consumes in excess of 20 Million MT in thermal coal per annum; TIL also sells to other major consumers in India. Ø  TIL looking for strategic partnership with suppliers to increase its share in the Global Coal Trade
  • 5. GLOBAL COAL TRADE SNAPSHOTS
  • 6. Asia’s Most Important Fuel "   Coal remains a primarily source for power generation and metallurgy "   Cheapest source of energy on a heat adjusted basis "   Long term factors to drive global growth in coal demand "   Infrastructure bottlenecks and regulatory constraints restricting supply Energy Consumption1 Rest of World 7,313 Mtoe Asia 3,982 Mtoe Source: BP World Energy Report 2009 1Mtoe = Million tonnes of oil equivalent Coal 51.0%Oil 29.7% Natural Gas 11.0% Hydro Electric 5.3% Nuclear Energy 3.0% Oil 37.5% Natural Gas 31.3% Coal 17.4% Hydro Electric 6.9% Nuclear Energy 6.8%
  • 7. Global Coal Scenario Proven Balance Reserves Share of World Current Production Reserve to Production Ratio Years China 114,500 14% 3,800 35 USA 238,308 29% 973 245 India 58,600 7% 574 100 Australia 68,200 9% 409 186 Russia 157,010 19% 335 527 Indonesia 4,328 0.5% 375 15 South Africa 30,408 3.7% 250 122 World 826,001 7,678 119 All figures are in Million Tons Source: World Energy Council
  • 8. WORLD’S TOP COAL IMPORTERS / EXPORTERS (2012) IMPORTERS EXPORTERS PR  China   230Mt   Australia   284Mt   Japan   182Mt   Indonesia   309  Mt   South  Korea   130Mt   Russia     124Mt   India   138Mt   USA     97Mt   Taiwan   70Mt   Colombia   75Mt     Germany   41Mt   South  Africa     72Mt   UK   33Mt   Kazakstan   34Mt  
  • 9. USA 97 Mt exports India 138 Mt imports China 230 Mt imports Europe 160Mt imports N. East Asia 221 Mt imports Importer Exporter Major trade flows Minor trade flows Indonesia 309 Mt exports Others 117 Mt imports 32 Mt 40 Mt to Asia 57% of world seaborne coal trade in the Pacific market Australia 284 Mt exports Colombia 75 Mt exports South Africa 72 Mt exports Russia 124 Mt exports Importer Exporter Major trade flows Minor trade flows Others 74 Mt exports India and China are key players and will drive future demand Global Trading (Hard Coal) Steam Coking Total Trade 1990 299Mt 199Mt 498Mt 2000 421Mt 187Mt 608Mt 2012 750Mt 250Mt 1000Mt Top 5 thermal coal import countries are all from Asia, with total imports accounting for ~54% global demand Source: World Coal Institute, IEA 2010 • Australia is the world’s largest coal (Steam + Met) exporter. • Indonesia is the world’s largest steam coal exporter. • Seaborne trade in steam coal has increased on average by about 7% each year (over the last 20 years)
  • 10. Major Originating Countries Exporting Countries Total Exports Imports to India Imports to China Australia 284.00 25.00 56.00 South Africa 72.00 25.00 15.00 Indonesia 300.00 50.00 68.00 Total Coal 975.00 137.50 220.00* Thermal Coal 775.00 105.00 110.00 All figures are in Million Tons
  • 11. Bituminous Coal Price – NewC Index – 6000 NAR Source –Bloomberg Price decline led to cancellation of more than 400 Million MT new port Capacity
  • 12. Bituminous Coal Price – API4 Index – 6000 NAR Source –Bloomberg API4 is becoming a more significant benchmark of Bituminous coal imports into India
  • 13. Sub-Bituminous Coal Price – SGX 4900 NAR Source –Bloomberg Not many hedging options available on sub-bit coal space
  • 14. INDIA’S GROWING APPETITE FOR COAL
  • 15. Indian Coal Economics 2006-07 Actual 2012-13 Actual 2013-14 Estimate 2016-17 Estimate* Coal Demand 474.18 700.00 770.00 980.00 Indigenous Coal 430.83 557.00 605.00 715.00 Net Gap 43.35 143.00 165.00 265.00 Coal Import 43.08 137.50 165.00 260.00 Coking 17.88 32.50 35.00 50.00 Non-coking 25.20 105.00 130.00 210.00 All figures are in Million Tons Source –Reuters * Planning commission estimates
  • 16. Factors influencing Indian growth in imports Macro Economics • GDP Growth • Favorable Demographics • Per Capita Consumption of Electricity • Reduction in import duty Micro Economics • Supply – Demand mismatch • Controlled Mining Regime • Quality of indigenous Coal Environmental Factors • Limitations of use of High Ash, High Sulphur Coals • Expensive cost of local logistics
  • 17. Indian Power Scenario 0 200 400 600 800 1000 1200 2002 2007 2012 2017 Installed Capacity Per Capita Consumption
  • 18. Non-coking Coal Originations for India SHORT TERM  Largest exporter of steam Coal, ~300Mt in 2012  Low Ash low Sulphur Coal, suitable for power generation  Inland waterways and floating cranes allow multiple loading points  Regulatory changes could be potential impediment LONG TERM  Significant untapped coal reserves  Close proximity to India gives freight advantage  Suitable for blending with Indian coal, with low Ash disposal  Environmentally friendly SHORT TERM  South African exports well established in the international market  Exports through Richards Bay Coal Terminal, only major export option with capacity of upto 91Mt  Railway capacity is bottleneck at 70Mt annual throughput LONG TERM  Limited scope for growth  Inadequate railway infrastructure  Port owned by consortium of producers – significant entry barrier for new investors INDONESIA SOUTH AFRICA
  • 19. KALIMANTAN HAS EMERGED AS A MAJOR ORIGINATOR
  • 20. Indonesia Coal Economics 2012 Actual 2013 Estimate 2017 Projection Coal Production 360.00 375.00 400.00 Local Demand 53.00 65.00 100.00 Exports 303.35 310.00 300.00 POWER GEN CAPACITY 60 GW (Coal 20 GW) 66 GW 85 GW (Coal 28 GW) All figures are in Million Tons Source –Reuters
  • 21. Indonesia Coal Reserves Reserves Resources Kalimantan 19.10 56.00 Sumatra 12.90 63.50 Others - 0.50 Total 32.00 120.00 All figures are in Billion Tons Source –Geological Agency 2013 Reserves Resources Lignite 29% 20% Sub-bit 60% 66% Bituminous 11% 14%
  • 22. Resources Comparison • Better average coal quality • 90% Coal Production v/s 34% of total reserves • Relatively new and efficient infrastructure; no railway Kalimantan • In general, poorer quality • 8% of Coal production v/s 55% of total reserve • Old with new ones coming fast and existing railway Sumatra
  • 23. SUPPLY SECURITY – CHALLENGES & STRATEGIES
  • 24. Why Supply security ?
  • 25. Long Term Security Equity Model Off-take Model
  • 26. Infrastructure Investment Terms Regulatory Framework Mining Equity
  • 27. Key Challenges to Investments "   Conflicts between mining operations and Forestry regulations "   Lack of Coordination between Central and provincial Govts "   Confusions over implementation of mining law "   Land Acquisition "   Improving competitiveness of taxation and royalty system "   Security of assets, people and ownership rights "   Interference from Taxation authorities "   Corruption, Collusion and Nepotism
  • 28. Quantity/ Duration Pricing/ Cost Plus Regulatory Framework Flexibility Off-take
  • 29. Key Challenges to Off-takes "   Uncertainty over regulatory frame work on minimum pricing "   Possible bans/restrictions on Low Rank Coals "   Infrastructure development to get the coal from mine to loading points in time "   Availability of Floating Cranes/Floating terminals "   Competitiveness of the Mining Cost/Transport Cost to sustain the low price regime prevailing currently "   Weak legal framework to enforce contractual defaults
  • 30. Strategies for Supply Security "   Tie-ups with key suppliers is important for growth "   Relationship based model "   Supplier benefits from the Brand recognition in the destination market "   Win-win pricing model "   Volume commitments in the right CVs
  • 31. To Conclude… "   While India face a few short term issues, the fundamentals for strong and sustained growth are in place. "   Power sector reforms need to be accelerated but private players drive growth in generation side. "   Tata International hopes to play a significant role in India’s Power Sector growth story. "   Kalimantan Coal makes an obvious choice for India however Kalimantan bituminous Coal will continue to face high competition from other sources like South Africa, USA and Australian coal "   Kalimantan Low Rank Coal will face competition from Sumatra and domestic coal prices in India "   To help alleviate negative perception, there should be a stop to draft regulations which only force potential investors and long term buyers wary of further commitments.
  • 32. Thank You Sabyasachi Mishra Head – Minerals (Singapore) Tata International Singapore Pte Ltd Email: sabysachi.mishra@tatainternational.com Please visit www.tatainternational.com for more details.

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