india thermal coal_markets
Post on 16-May-2015
329 Views
Preview:
DESCRIPTION
TRANSCRIPT
Trusted commercial intelligence www.woodmac.com
Global Thermal Coal Markets:
Putting India into context
12th Annual Coal Markets (IBC Asia)
Singapore, 25-26 February 2014
Trusted commercial intelligence © Wood Mackenzie
2
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
Trusted commercial intelligence © Wood Mackenzie
3
Pacific basin thermal coal seaborne demand has been outpacing
Atlantic basin demand… use of low rank coals is increasing
0
100
200
300
400
500
600
700
800
Mt
Other Pacific Japan China India
0
100
200
300
400
500
600
700
800
Mt
Australia high ash Australia bituminous
Sub-bit/lignite Bituminous others
Seaborne thermal demand by basin Pacific demand by country Pacific demand by rank
Source: Wood Mackenzie Coal Market Service
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
0
100
200
300
400
500
600
700
800
Pacif
ic %
Mt
Atlantic Pacific Pacific %
What drives India’s thermal coal import demand?
Trusted commercial intelligence © Wood Mackenzie
4
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
0
5
10
15
20
25
30
35
40
45
50
0 50 100 150 200 250 300 350 400 450
Ash
co
nte
nt
%
Domestic thermal coal production (Mt) Ash limit for power utilities Average ash - seaborne markets
Source: Wood Mackenzie Coal Market Service
2013 domestic thermal ash curve
Trusted commercial intelligence © Wood Mackenzie
5
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)
33%
5% 9%
54%
Coal cost Royalty and taxes Road freight Rail freight
0
10
20
30
40
50
60
70
80
Ex-mine Washing &processing
Royaltyand taxes
Roadfreight
Rail freight Deliveredcost
Valu
e, U
S$/t
Source: Wood Mackenzie Coal Market Service
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.
Trusted commercial intelligence © Wood Mackenzie
6
Domestic production struggling to meet demand; imports are rising
rapidly (3/3)
Affecting utilization levels (especially for newly commissioned projects) Domestic coal supply flat, demand rising rapidly
Source: Wood Mackenzie Coal Market Service
0
100
200
300
400
500
600
2008 2009 2010 2011 2012 2013
Mt
Coal demand for power
Domestic supply for power
58%
60%
62%
64%
66%
68%
70%
72%
74%
76%
78%
80%
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 2012 2013
Cap
ac
ity f
ac
tor,
%
Cap
ac
ity,
GW
Coal-fired capacity Capacity factors
But there are challenges…
Trusted commercial intelligence © Wood Mackenzie
7
Weak economic growth is the biggest challenge; pressuring trade
deficit and the local currency (1/3)
India’s foreign trade position in Indian Rupee Billion India’s foreign trade position in USD Billion
-30
-20
-10
0
10
20
30
40
50
US
D B
illi
on
Net trade Exports Imports
April 2011 -1500
-1000
-500
0
500
1000
1500
2000
2500
3000
INR
Bil
lio
n
Net trade Exports Imports
Sept 2013 April 2011 Sept 2013
Source: Reserve Bank of India
GDP growth down from > 10% in 2010 to < 5% last year; affecting power demand growth
Trusted commercial intelligence © Wood Mackenzie
8
Thermal coal import volumes risen rapidly in the past five years –
Rupee depreciation inflated the import bill (2/3)
0%
500%
1000%
1500%
2000%
2500%
3000%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Ind
ex
= 1
00
% i
n 2
00
4
Volume Value - Million USD Value - Million INR
India’s thermal coal import volume and value
Source: GTIS, Wood Mackenzie Coal Market Service
Rupee depreciation
has increased the cost of coal imports despite declining prices in the seaborne
market
Trusted commercial intelligence © Wood Mackenzie
9
Slow pace of reforms cause of power sector woes (3/3)
Gap widening between cost of supply and revenue received Rising electricity sales, rising losses
Source: CEA, Wood Mackenzie Coal Market Service
-200
-100
0
100
200
300
400
500
Cost of supply Revenue Gap
Pais
a/k
wh
2010 2011 2012
Gap
Poor financial health of power distribution utilities a deterrent to implement reforms
0
100
200
300
400
500
600
700
0
2
4
6
8
10
12
14
2008 2009 2010 2011 2012
Ele
ctr
icit
y S
ale
s, T
Wh
Utilit
ies L
osses, U
S$ B
n
State Power Utilities' Losses
Electricity Sales
Trusted commercial intelligence © Wood Mackenzie
10
~ 40 GW capacity added in past three but running at low utilization
levels. Another 23 GW coming soon…
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
Pre - 2010 2010 2011 2012 2013 2014 2015
Co
al-
fire
d g
en
era
tio
n c
ap
acit
y, M
W
Contracted, regulated tariff Contracted, competitive tariff Uncontracted
Source: CEA, Wood Mackenzie Coal Market Service
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.
Trusted commercial intelligence © Wood Mackenzie
11
India thermal coal demand components – the big picture
Installed capacity is not disappearing (GW) Overwhelming contribution from power sector (TWh)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2008 2011 2014 2017 2020 2023 2026 2029 2032 2035
TW
h
Coal Natural Gas Nuclear Hydro Renewable Oil Other
0
100
200
300
400
500
600
700
2008 2011 2014 2017 2020 2023 2026 2029 2032 2035G
W
Coal Natural Gas Nuclear Hydro Renewable Oil Other
Source: Wood Mackenzie Coal Market Service
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
Trusted commercial intelligence © Wood Mackenzie
12
India’s coal market to bifurcate; coastal and inland, but domestic
coal reforms hold the key
0 GW
0 - 5 GW
5 - 10 GW
10 - 15 GW
15 - 20 GW
> 20 GW
Source: Wood Mackenzie Coal Market Service
2012
2030
India will build more power plants designed for import coal
Import share will increase despite growth in domestic output
0 GW
0 - 5 GW
5 - 10 GW
0%
4%
8%
12%
16%
20%
24%
28%
0
200
400
600
800
1,000
1,200
1,400
1,600
2008 2012 2016 2020 2024 2028 2032
Imp
ort
s, o
f to
tal d
em
an
d
Do
mesti
c p
rod
ucti
on
, M
t
Domestic coal production, left axis
Thermal coal imports, of total demand, right axis
Trusted commercial intelligence © Wood Mackenzie
13
What is the outlook of seaborne thermal coal prices?
Trusted commercial intelligence © Wood Mackenzie
14
Extended period of weak coal pricing due to chronic oversupply
conditions in the seaborne thermal market
Source: Wood Mackenzie Coal Market Service
0
500
1,000
1,500
2,000
2,500
Mt
Probable & Possible Capacity
Highly Probable Capacity
Operating Capacity
Seaborne Demand
Supply by mine status versus seaborne demand (Mt) Thermal coal price forecast (Real US$/t 2013)
$0
$20
$40
$60
$80
$100
$120
$140
$160
2008 2012 2016 2020 2024 2028 2032U
S$
/t,
Rea
l 2
01
3
(Ori
gin
al e
ne
rgy v
alu
es
) 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
2013-2022: nearly flat
prices due to
abundance of supply
meeting growing, but
slowing, thermal
demand
2023-2035: steadily rising
prices as new supply and
infrastructure development
required to satisfy demand
Trusted commercial intelligence © Wood Mackenzie
15
Summary and Conclusions
Near-Term Implications
• Weak economic situation, if continued, will adversely
affect power demand growth.
• Fuel risk has become a pass-through but doesn’t not
provide major upside to coal imports as power
demand is sensitive to tariffs.
• Low utilization levels of new power projects will create
M&A opportunities.
• 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:
Longer-Term Implications
• We remain positive about India’s long-term potential
as a large thermal coal importer (second to China).
• Domestic coal sector reforms will accelerate coal
production.
• Reduction in transmission and distribution losses will
reduce power tariffs and help demand growth.
Trusted commercial intelligence © Wood Mackenzie
16
Disclaimer
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.
Strictly Private & Confidential
Europe +44 131 243 4400
Americas +1 713 470 1600
Asia Pacific +65 6518 0800
Email contactus@woodmac.com
Website 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
top related