Saturday, May 14, 2011
* Rebar futures rise despite China reserve ratio hike
* Indian 63.5 pct ore quotes stay at $186-$188/T
* Limited activity in iron ore physical markets
By Manolo Serapio Jr
SINGAPORE, May 13 (Reuters) - Chinese rebar steel futures rose 1.4 percent on Friday as a weaker dollar helped commodities rebound after recent steep losses, while investors shrugged off further tightening measures by Beijing.
Investors took the latest bank reserve requirement hike by China, its eighth since October, in their stride, with Shanghai commodity prices rising sharply on hopes Beijing may be nearing the end of its monetary tightening campaign.
The most active October rebar contract on the Shanghai Futures Exchange closed up 68 yuan at 4,850 yuan per tonne, gaining 1 percent over the week.
A softer dollar also supported prices. The dollar index , which measures the greenback against a basket of currencies, dropped 0.46 percent by 0849 GMT.
Rising steel prices could boost appetite of Chinese steel mills for iron ore with spot prices of the steelmaking ingredient stuck in narrow ranges since last month on slow demand from top buyer China.
Traders said the physical iron ore markets remain hushed although tight supplies from India should keep prices at current levels.
"The physical market continues with very little activity. Prices are expected to remain firm in view of reduced supplies due to monsoon in west coast (India)," London Dry Bulk said in a note.
Indian ore with 63.5 percent iron content was quoted at $186-$188 a tonne, including freight, on Friday in China, unchanged from the previous day, said Chinese consultancy Umetal.
Shipments from India, the world's No. 3 iron ore supplier which sells most of its material in the spot market, are expected to slow during the monsoon season which starts around June and continues for around four months.
"The tightness in iron ore supply will last for a long period, maybe until next year, so the current high prices will last for a while," Jia Liangqun, vice president of Chinese industry consultancy Mysteel, told an industry conference in Shanghai.
China has been aggressively boosting domestic production of iron ore to cut reliance on imports but Jia said it would be difficult to cut imports by more than 50 percent before 2015 given strong steel output in China, the world's No. 1 producer.
"The supply glut will happen later than what we expect," he said.
Global seaborne iron ore supply has been increasing by 20-40 million tonnes annually in recent years, but expansion plans by global miners like Vale , Rio Tinto and BHP Billiton could boost annual supply by around 100 million tonnes from around 2013, analysts have said.
Shorter term, it might take a while before Chinese mills strongly build iron ore stockpiles, as inventories of imported iron ore at Chinese ports stood at nearly 83 million tonnes on Friday, near a record set in April.
Iron ore indexes, which track the Chinese spot market and are used by global miners to price supply contracts, slipped on Thursday.
Platts 62 percent iron ore benchmark IODBZ00-PLT dropped a dollar to $182 a tonne and Steel Index's similar gauge .IO62-CNI=SI eased 60 cents to $179.
Metal Bulletin's 62 percent index .IO62-CNO=MB shed 8 cents to $179.52. (Additional reporting by Ruby Lian in Shanghai; Editing by Himani Sarkar, sourced Thomson Reuters)
Saturday, 14 May 2011
ET reported that Monnet Ispat & Energy has earmarked about INR 500 crore for acquisition of overseas mines this year for its power and metals businesses.
The company is scouting for buys in Botswana, South Africa and Mozambique to secure raw materials for its steel and power businesses.
Mr Sandeep Jajodia MD of Monnet Ispat said that the company also plans to invest up to INR 5,000 crore on power projects and INR 3,000 crore on steel units over the next 2 to 3 years.
Monnet is also looking at entering the renewable energy sector by adding about 300 MW over the next 3 years through wind and hydel power based generation.
Monnet Ispat is targeting 3,000 MW of thermal power based generation by 2014-15. The company is building a 1,750 MW plant in Orissa, for which it will using captive coal reserves. It also plans to build a 1,320 MW plant based on imported coal, for which it has identified sites in Andhra Pradesh, Tamil Nadu and Gujarat.
Monnet had recently acquired an Indonesian coal company, PT Sarwa Sembada Karya Bumi for USD 24 million, in the Jambi province of Sumatra, Indonesia.
The acquisition, made through its wholly owned subsidiary, Monnet Global Limited, gives it access to thermal coal mines spread over 25,000 hectares of which 1,500 hectares have been explored. Besides, the company has been able to establish 65 million tonne of coal reserves in the mines and expects these reserves to go up substantially after exploration is completed.
(Sourced from Economic Times)
Thursday, May 12, 2011
By T.E. Raja Simhan
Chennai : Residents of Chennai living in the vicinity of the city's port may get a breath of fresh air after today's order of the Madras High Court, but, on the flipside, an estimated 10,000 people could be rendered jobless.
And, the Chennai port could lose revenue of nearly Rs 250 crore a year, estimates an official of the port, as a consequence of the order that asks the port to stop handling coal and iron — which generate dust and hence polluting — from October.
The port annually handles nearly 20 million tonnes of both coal (8 mt) and iron ore (12 mt). “We are grappling with today's order. We need to study it thoroughly and take it up our Ministry [Shipping] to take up the next course of action. Nearly 5,000 is our employees while there could be another 5,000 people outside who could be affected,” the official said.
The order was issued by Mr Justice Elipe Dharma Rao and Mr Justice M. Venugopal on a Public Interest Litigation filed by the Avoor Muthiah Maistry Street Residents' Welfare Association in North Chennai nine years ago on the pollution affecting people in the area.
The Court found the measures taken by the Chennai Port Trust “inadequate”. The directions of the Tamil Nadu Pollution Control Board to arrest the pollution have not been taken care of by the ChPT, exhibiting “its callous attitude and scant regard to the public health and security,” the Court observed.
The Court also directed the Centre and the State Government, ChPT and the Ennore Port Trust to “see that not even a single employee is retrenched or otherwise made to lose his livelihood because of the distribution of cargo between Ennore port and Chennai port.”
In 2009, the then Union Shipping Minister, Mr T.R. Baalu, had said that Chennai will become a clean port and handle clean cargo such as cars and containers, and that coal would be shifted to the nearby Ennore once facilities there are ready.
However, subsequently the Ministry retracted from this on grounds that the move would affect the livelihood of a large number of employees. (sourced Business line)
Tags: Madras HC order, stop handling, coal and iron, generate dust
Thursday May12, 2011
COAL of Africa (CoAL) has paid an administrative fine of R9,25m to the Department of Environmental Affairs as it works towards gaining the final approval it needs to complete building its Vele coal mine .
The payment of the fine "is a precondition to enable the (department) to consider and decide upon the rectification application relating to an environmental authorisation for Vele Colliery," CEO John Wallington said yesterday.
CoAL has spent about R600m on Vele, a coking coal mine near the Mapungubwe World Heritage Site, but the work was halted just months before commissioning. It received a compliance notice from the department in August.
CoAL, a coal producer which trades on the JSE , ASX and AIM , has run into strong headwinds from environmentalists opposed to its Vele mine. They argue it will destroy the natural beauty near Mapungubwe.
In March, CoAL secured a debt facility of up to $50m with Deutsche Bank, allowing it to repay a $20m loan due to JPMorgan and have funds to complete Vele if and when it secures the approvals it needs. (sourced Business Day)
New Delhi : Prime Minister Manmohan Singh has called a high-level meeting with the ministers in charge of coal, power, environment and finance to find a solution for the ongoing issues regarding coal shortage.
“The main agenda for the meeting is to discuss problems currently facing the coal, power and the environment sectors. The growth in the last five years and the plans for the current financial year would be discussed in the meeting,” Coal Minister Sriprakash Jaiswal said.
The meeting, to be held on May 16, would also be attended by Planning Commission Deputy Chairman Montek Singh Ahluwalia. Jaiswal also added that the PM had expressed grave concern over the issues plaguing these sectors. “He has said that the country’s growth should not be hampered. Coal production impacts the performance in other ministries like power and steel etc,” he said.
Coal is a critical input for industries operating in major infrastructure sectors of power, steel and cement. Issues regarding environment clearances and land allocation coupled with the capacity constraints of the state-owned Coal India Ltd (CIL) ensured no growth in the miner’s production at 431 million tonnes (mt) last financial year.
The government had originally estimated a shortage in coal availability to the tune of 83 mt for the current financial year against a demand of 713 mt from consumers. Latest estimates suggest that this shortage is likely to cross 112 mt by March 2012 which will be met through imports.
The coal ministry admits that the environment ministry’s controversial ‘No-Go’ policy notified last year is a major reason for the rapidly building shortages in coal availability. A 10-member Group of Ministers (GoM) headed by Finance Minister Pranab Mukherjee is currently taking a fresh look at the policy which bars coal mining in heavily forested areas.
“The GoM is taking a look at the problems that have arisen because of environment issues. The PM’s meeting will have a larger agenda. He has expressed extra concern,” Jaiswal said.
He also informed that offers for coal imports sought by CIL from international suppliers would be received by May 23. The company had earlier invited expressions of interest and received 27 proposals from 15 companies. CIL will enter into long-term offtake agreements with the shortlisted suppliers after deciding the quantity to be imported. (sourced Business Standard)
By Bruce Nichols and Jackie Cowhig
HOUSTON/LONDON(Reuters) - The United States could vault back into the top rank of coal exporters for good this year thanks to Asia's fuel demand -- just as surging gas output and tougher environmental laws threaten mainstay domestic sales.
Leading U.S. producers, with wallets bulging from high world prices, are jostling to boost their Asian presence.
Their only problem is squeezing enough coal through over-stretched ports and railroads, but efforts are underway to open new outlets thanks to surging confidence in the sector.
"We see it as a structural change," said Deck Slone, chief spokesman for Arch Coal Inc, the second largest U.S. producer after Peabody Energy Corp.
Arch has agreed to buy International Coal Co and has opened a Singapore-based subsidiary to boost its export presence.
Analysts say total U.S. coal exports could amount to around 100 million tons (91 million tons) this year, leaving only Australia and Indonesia above it in the world export rankings, and putting it above Russia, Colombia and South Africa.
It exported 81.5 million tons in 2010. A short ton is 0.907 metric tons, the latter used in markets outside the U.S.
The economic boom in China and India has been the driver, but the developing world is also turning more to the United States to make up for supply shortfalls, particularly buyers who want very high energy-content U.S. fuel regardless of its high-sulphur content.
Miners in the U.S., the world's second-largest greenhouse gas emitter, have been hit by weak domestic coal sales and fear President Barack Obama's tough climate change policies will further cut coal demand.
"U.S. policy toward coal has been negative," said analyst David Khani of FBR Capital Markets. "Add having extra natural gas and every coal producer wants to ship every ton they can out of the U.S."
The opening up of the export market puts them in a more profitable, long-term position.
U.S. miners are now rushing to open Asian marketing offices and to merge, amalgamate and expand their output with their eyes on the export prize.
Annual U.S. coal exports have hit or exceeded 100 million tons only six times in the last 50 years. Exports have been sporadic depending on international prices and freight costs.
But world prices of over $100 a ton (more than $110 a ton) seem here to stay due to strong demand, logistical bottlenecks and slow export growth in major producers this year.
Increased U.S. exports are unlikely to bring prices lower, traders say, but will compensate for delayed coal from Australia and will be smoothly absorbed by the Asian market.
This could not come at a better time for U.S. coal miners who face slow-growing domestic consumption amid tough environmental rules and competition from plentiful, cheap, cleaner natural gas surging from new shale plays.
Optimism dominated analyst conference calls to discuss quarterly earnings as coal company executives forecast historic shifts and big growth.
Arch executives noted that, while 35 gigawatts of U.S. coal-fired generating capacity, 11 percent of the total, could be shut down in the next 10 years, 249 gigawatts of new coal-fired power plants are under construction worldwide.
"This is going to require almost 800 million tons of new coal supply during this time period," Arch President John Eaves told investors.
Total seaborne thermal and coking coal trade in 2009 was 1 billion tons a year, according to the World Coal Association.
"Coal is expected to fuel more incremental generation over the next decade than gas, oil, nuclear, hydro, geothermal and solar combined," Greg Boyce, CEO of Peabody Energy, told investors.
"It's something unprecedented in human history, arguably, 3 billion people going through an industrial revolution at the same time," Arch's Slone said.
To a large extent fluctuating freight rates dictate whether U.S. coal exports are competitive with other coal origins.
Another risk is limited U.S. rail and port capacity.
Although nameplate capacities are higher, practical U.S. export capacity is estimated at a maximum of 120 million tons.
"Finding international buyers isn't the problem," an industry insider said. "The bottleneck in the supply chain longterm will be getting the transportation secured."
U.S. coal is already flowing in every direction, and many of the routes are new.
Ports on Chesapeake Bay, at Mobile, Alabama, and the lower Mississippi River around New Orleans, are at maximum capacity.
New flows are coming to Corpus Christi and Houston, Texas, on the Gulf Coast.
A test cargo has been sent across the Great Lakes and down the St. Lawrence River to Europe. Arch is exporting small amounts of Colorado coal through Long Beach, California, a past coal export site that fell into disuse.
Other U.S. coal is flowing into the Pacific Basin from Vancouver and the newer port of Prince Rupert in northern British Columbia, both in Canada. U.S. steam coal is even going to usually self-sufficient South America.
Canadian National Railway's terminal upriver from New Orleans is turning away calls from producers who cannot find a way out, terminal president Bruce Conti said.
More tonnage is going to midstream Mississippi River operators, who use cranes floating in the middle of the river to transfer coal from domestic barges to ocean going ships.
"We're doing more coal than we've ever done historically," said John Crane of St. James Stevedoring in New Orleans.
(Reporting by Bruce Nichols and Jackie Cowhig, editing by William Hardy, sourced Reuters)
The company, headed by billionaire chairman Gautam Adani, reported a consolidated Jan-March net profit of 9.28 billion rupees against 3.39 billion rupees a year ago.
Net sales rose to 91.1 billion rupees from 78.26 billion rupees, it said.
Adani's coal trading business, power generation subsidiary Adani Power and ports arm Mundra Port and Special Economic Zone, have all shown strong growth boosting the parent's performance, Executive Director Devang Desai said.
The conglomerate, which also has interests in real estate and agroproducts, has been expanding across the globe through acquisitions and tie-ups.
Earlier this month unit Mundra Port agreed to buy Abbot Point Coal Terminal in Australia for $2 billion in an all-cash deal to tap into growing coal traffic in overseas market.
Last August, Adani agreed to invest $1.65 billion in an Indonesian coal port and railway that can source fuel for its Indian power plants and help open up Indonesia's hard-to-reach coal resources.
The same month, Adani sealed a deal with Australia's Linc Energy to buy its Galilee coal project.
Adani recently synchronised a 660 megawatt unit at its Mundra power plant in Gujarat, which currently produces 1,980 MW of power. The Mundra plant plans to reach a power generation capacity of 4,620 MW by the end of the current fiscal, Desai said.
The group is implementing 18,500 MW of power generation projects at seven locations in India with the objective of raising it to 20,000 MW by 2020, it said in a statment.
Adani is also investing in cross country power transmission lines to evacuate power from its generation facilities.
The firm has bought shipping vessels and plans to develop more ports across the country to strengthen its logistics network.
Desai said the founding Adani family will be required to dilute stake in Adani Enterprises to bring down their holding to 75 percent as required by Indian regulatory laws.
Indian laws makes it mandatory for listed companies to have a public shareholding of at least 25 percent. The Adani family holds 78.5 percent at present.
He said a decision on the mode of fund-raising will be taken in the next two months.
Adani Enterprises shares closed up 1.62 percent at 637.55 rupees in a weak Mumbai market.
(Reporting by Aniruddha Basu; Editing by Harish Nambiar,sourced Reuters)
By Christiaan Hetzner
FRANKFURT (Reuters) - Despite bailouts for Greece, Ireland and Portugal, Europe's debt crisis could still spread to core euro zone countries and the emerging economies of eastern Europe, the International Monetary Fund warned on Thursday.
The IMF said it stood ready to provide more aid to Greece if requested, though the country that triggered the sovereign debt crisis in 2009 still had plenty of untapped options for raising extra cash itself through privatisations.
Government sources in Athens meanwhile said international inspectors checking on Greece's compliance with its EU/IMF rescue package had found problems and were pressing for deeper spending cuts to cover a revenue shortfall.
"Contagion to the core euro area, and then onwards to emerging Europe, remains a tangible downside risk," the global lender's latest economic report on Europe said.
Finance ministers of the 17-nation single currency area are set to approve a 78 billion euro (67.9 billion pound) rescue plan for Portugal next Monday after Finland's prime minister-in-waiting clinched a deal to ensure parliamentary approval of the package.
But markets are increasingly concerned that Greece may never be able to pay back its 327 billion euro debt pile and will have to restructure, forcing losses on investors with severe consequences in the euro zone and beyond.
Asked whether there could be new aid package to help Greece work through its fiscal recovery programme, the IMF's European department director, Antonio Borges, said the fund was open to the possibility.
"The Greeks have to take the initiative, and so far they have not approached us. The IMF stands ready (to provide additional support) as a matter of policy," he told reporters.
However, Athens also had the potential to raise funds by selling state assets, with the 50 billion euros mentioned as a possible estimate of revenues from a privatisation programme "probably less than 20 percent of all the assets the Greeks could privatise."
The semi-annual IMF report said peripheral members of the euro zone needed to make "unrelenting" reform efforts to overcome the debt crisis and prevent it spreading further.
It also urged the European Central Bank to tread carefully on further rises in interest rates after last month's first increase since 2007, saying euro zone monetary policy could "afford to remain relatively accommodative."
Borges said the programme of austerity measures and structural reforms agreed a year ago was "probably the best thing that can happen" to Greece, though there was always the question of whether it was too ambitious.
Greece has implemented harsh cuts in public spending, public sector wages and pensions but has struggled to raise revenue due to a deep recession and chronic tax evasion. The government faces growing resistance to austerity highlighted by a general strike on Wednesday.
GREEK YIELDS SOAR
Greek sovereign bond yields soared to fresh euro-era highs on a growing belief that euro zone finance ministers will not deliver fresh aid for Athens at their monthly meeting next week. The yield on two-year Greek bonds rose to an eye-watering 27 percent.
By contrast, Portuguese and Irish yields eased after the Finnish deal on Lisbon's behalf removed one key political uncertainty.
The eurosceptical True Finns party, which scored big gains in last month's general election by vehemently opposing the Portuguese bailout, said it would not take part in talks to form the next Finnish government.
German Finance Minister Wolfgang Schaeuble told parliament in Berlin he saw considerable concern for Greece and doubts about its ability to return to capital markets.
Any fresh aid would have to be tied to clear conditions and could only be considered after EU and IMF inspectors, now in Athens, report on Greek compliance with its fiscal adjustment programme, he said.
Signs of disquiet are beginning to emerge from the EU/IMF/ECB troika mission, government sources in Athens said.
"They are forming an opinion that there are difficulties," said one senior government official who requested anonymity. "They are concerned there is a high risk revenue targets will not be met and are pressing for more spending cuts."
The Washington-based fund's views about Greece are being closely watched ahead of next month's decision on whether Athens receives the next 12 billion euro tranche of its 110 billion euro EU/IMF bailout.
Ireland and Greece are already dependent on 52.5 billion euros of IMF aid while Portugal is awaiting a 26-billion-euro three-year lifeline from the Fund.
Banks in the troubled countries are being kept above water by unlimited ECB liquidity, and the IMF said the central bank might need to extend that system again beyond June 12.
Financial markets and economists are overwhelmingly convinced that Greece will have to restructure its debt mountain and force investors to take losses.
But Borges said the IMF believed Greece was not bankrupt despite its high debt.
"All IMF programmes are based on debt sustainability, so as long as a programme is in place that means that the IMF believes Greek debt is sustainable," he said.
(additional reporting by Emilie Sithole-Matarise in London, Annika Breidthardt in Berlin and Dina Kyriakidou in Athens;writing by Paul Taylor; editing by John Stonestreet, sourced Reuters)
By Noah Barkin
BERLIN (Reuters) - Valentine's Day is supposed to be a celebration of love between partners, but that was in short supply when ministers from Europe's single currency zone met on the fifth floor of the Justus Lipsius building in Brussels on February 14.
After a brief lull in their debt crisis at the start of 2011, tensions in the 17-nation euro area had returned and financial markets were piling new pressure on the bloc's weakest members.
Ten days earlier, German Chancellor Angela Merkel and French President Nicolas Sarkozy had sparked an angry EU backlash by unveiling a plan to impose debt limits and harmonise wage policies across the vast economic area of 330 million people.
Deep divisions over the shape of a new anti-crisis package that European leaders had promised to unveil by late March were opening up.
Also hanging over the meeting was a new fear so troubling the finance ministers had taken special care not to discuss it in public -- the rising risk that Greece would have to restructure its 327 billion euro (288 billion pounds) debt mountain.
The week before, inspectors from the European Union and International Monetary Fund (IMF) had approved 15 billion euros in aid to Athens, the latest tranche of a 110 billion euro bailout package sealed in May 2010.
But Poul Thomsen, the IMF envoy monitoring Greece's economic progress, had coupled that decision with an unusually stark warning to the government of Prime Minister George Papandreou which instantly rang alarm bells for investors.
Without a "significant, broad-based acceleration of reforms", he said, Greece's rescue programme was doomed.
Even with the curtains drawn and their words safely muffled by heavy wood panelling in the large Brussels conference room named after Finland's first permanent EU representative Antti Satuli, the ministers were uneasy.
Jean-Claude Trichet, the grey-haired 68-year old president of the European Central Bank, who had travelled from Frankfurt for the meeting, accused the ministers of "shooting at your feet" for broaching the idea of buying up Greek debt and then retiring it to reduce the country's burden.
In the same building nine months before, Trichet had come under intense pressure to allow the ECB to acquire Greek debt on the open market, later pushing this controversial decision through over the objections of German Bundesbank chief Axel Weber. With his term at the helm of the ECB nearing an end, he was desperate to get tens of billions of euros in toxic Greek paper off his books. But governments were not cooperating.
As the barbs flew, Jean-Claude Juncker of Luxembourg, who was chairing the meeting and sat at the opposite end of the room from Trichet in a black suit and lavender tie, reminded participants that it was important to present a positive, united message on Greece's woes to the public.
Staying positive was not easy. To the left of Trichet, wearing a black dress and white Chanel jacket, Christine Lagarde of France grew impatient. Discussion of a Greek default, the former synchronised swimming champion said, should be avoided at all costs as it could unleash consequences beyond the control of the bloc and its members.
"You can't stroke an elephant just a little bit," Lagarde warned, according to confidential minutes of the meeting seen by Reuters.
Elephant indeed. Despite the best efforts of policy-makers to suppress discussion of Athens' problems, the expectation that Greece will become the first western European country to restructure its debts since post-war Germany in 1948 has taken on a sense of the inevitable in the past two months.
Last week a small group of euro zone finance ministers met in Luxembourg and admitted what had been clear to others for some time -- that last year's bailout of Greece had failed to restore confidence in the country's finances and new steps were urgently needed to alleviate its debt burden.
Sources tell Reuters they are now considering throwing more money at Greece and easing the terms of existing loans, possibly in combination with the "voluntary" involvement of Greece's private creditors.
But this strategy will only delay the real pain until a later date.
Most economists now believe that without an aggressive restructuring which forces private creditors to take losses of 50 percent or more on their Greek holdings, the country will not emerge from its downward spiral.
The only obvious alternative -- keeping Greece on EU life support for many years -- seems a political non-starter given the growing opposition to further aid in northern European countries such as Germany, Finland and the Netherlands.
Greece's debt crisis is the biggest challenge the bloc's policy-makers have faced since the launch of their bold currency experiment 12 years ago. European monetary union was always more about politics than it was economics. That's been part of the problem. Now those two factors -- economics and politics -- are on a collision course that could ultimately fracture the bloc, with Greece and other vulnerable countries like Ireland and Portugal forced to consider exiting the euro zone.
That would be a devastating setback for Europe, whose common currency is the culmination of half a century of closer integration.
"Greece's debt is at levels where it is very rare for a country to make it without a restructuring," Kenneth Rogoff, an economics professor at Harvard University and co-author of "This Time is Different", a best-selling 2009 book on debt crises, told Reuters.
"It is a manageable problem but it needs to be managed. You can't just put your head in the sand and hope it goes away."
THE BENEFIT OF HINDSIGHT
It wasn't supposed to come to this. Last year, when the EU and IMF teamed up to rescue Greece, they mapped out what they believed was a realistic plan for overhauling its ailing economy through a combination of spending cuts, tax hikes and deep structural reforms.
Coupled with an aggressive drive to root out corruption and tax evasion, this austerity was the shock therapy Greece needed to regain competitiveness, reduce its debt and win over investors again, the argument went.
Just in case markets hadn't got the message, it was driven home in a September paper by Carlo Cottarelli, the head of the IMF's fiscal affairs department, entitled "Default in Today's Advanced Economies: Unnecessary, Undesirable, and Unlikely".
With the benefit of hindsight, however, the scenario mapped out by Greece's saviours looks wildly optimistic.
Predictably, Athens has struggled to curb rampant tax-dodging and suffered repeated revenue shortfalls as a result.
A return to economic growth next year -- envisaged in last year's rescue package -- now looks doubtful, as do plans for Greece to return to the long-term debt markets in 2012 to fill a 27 billion euro funding gap.
Greece's debt load is set to rise to nearly 160 percent of annual output next year, a level that puts it on a par with Zimbabwe.
Other countries have seen their debt shoot up to similar levels, particularly in times of war, without losing access to the capital markets. Japan's debt-to-GDP ratio, for example, is projected to top 200 percent this year. But unlike Greece, a large portion of Japan's debt is held by domestic savers who are in no rush to jettison their holdings. Japan, like most countries, also benefits from having its own currency and a central bank that can tailor monetary policy to its needs.
Greece, by contrast, cannot unilaterally devalue the euro to boost competitiveness, nor convince the ECB to keep interest rates low when much bigger euro zone economies like Germany are thriving and inflation is on the rise.
Crucially, Greece also suffers from a credibility gap, having defaulted on its debt repeatedly over the course of its turbulent history.
"Greece has spent a supermajority of its time as a modern, independent state in default or rescheduling," said U.S. economist Nouriel Roubini. "Indeed, recorded sovereign defaults begin with city-states in ancient Greece."
The verdict of investors, who have pushed the yields on Greek two-year bonds up to an astounding 26 percent in recent days, is clear: a restructuring of Greek debt is now inevitable.
CAN OF WORMS
To ensure their currency bloc survives intact, European policy-makers must come up with answers soon on how and when that will happen. None of their options are attractive and every one of them carries big risks for the euro zone.
Their first priority is figuring out how to plug a funding gap of approximately 65 billion euros that looms for Greece in 2012 and 2013 if, as expected, it cannot return to the markets.
The bloc's immediate solution appears to be to offer Athens more money and simultaneously loosen the terms of the loans it offered last year, by cutting the interest rate it is charging and extending the period over which Greece must repay them to 10 years or more.
A source in Germany's ruling coalition told Reuters this week that these steps could be accompanied by private sector involvement -- in which banks, for example, agree to extend the maturities on their holdings -- on a voluntary basis.
Recent research from JP Morgan suggests banks holding Greek debt on their banking books -- as opposed to their trading books where assets must be marked-to-market -- might be able to avoid impairment charges under a maturity extension if coupon payments were left unchanged.
Euro zone politicians hope that a "soft restructuring" of this kind, with banks playing their part, might make the idea of giving Athens more aid an easier sell to leery constituents.
The problem is that few experts believe it can work.
"Getting investors to participate on a voluntary basis is a huge can of worms," said Andrew Bosomworth, a senior portfolio manager at PIMCO Europe in Munich.
"Who owns the bonds? Nobody knows. And even if you do figure that out what incentive do these investors have to roll over their debt or extend their maturities, especially if they fear more pain may be looming down the line?"
But Greece desperately needs more time to deliver on its fiscal adjustment plan. Papandreou's government has promised to sell off 50 billion euros in state assets by 2015. If some of that money starts flowing in over the next two years, it could help Greece chip away at its debt pile.
Kicking the can down the road also gives European banks additional time to build up provisions for their Greek sovereign debt holdings, reducing the risk that governments will have to recapitalise them later.
The dilemma for Europe is that even with modest private sector involvement, the plan will not put Greece back on a sustainable debt path nor ease market fears that a sizeable "haircut", in which investors are forced to accept a cut in the value of their bonds, will come in 2013, when policy-makers have said they could consider more radical steps.
Throwing more EU money at Athens will also increase the size of the public sector's exposure to Greek debt.
Once 2013 comes around, the only way to provide sufficient relief may be for European governments to hammer their own taxpayers by accepting big losses on the emergency loans they made to Greece. No sane politician will want to do that.
IN THE SHADOW OF THE GUILLOTINE
Delays in dealing with Greece's debt problem increase the likelihood that European governments will pay a high price down the road.
That is the crucial difference between the euro zone's debt crisis and the one experienced by Latin American countries starting in the early 1980s.
In Latin America, banks were given incentives to maintain their sovereign debt exposure over many years. When the day of reckoning finally came with the arrival of Washington's Brady Plan in 1989, it was the financial institutions that had lent the money in the first place which felt the pain.
In Europe, by contrast, the banks holding Greek debt are gradually being bought out by European governments in what former Argentine central bank governor Mario Biejer has likened to a "giant Ponzi scheme".
"If the sword of a debt restructuring must eventually fall in order to render Greece's debt stock manageable, that sword will fall principally on the neck of the official sector lenders," wrote Lee Buchheit, a lawyer at Cleary Gottlieb Steen & Hamilton in New York who helped negotiate Uruguay's 2003 debt restructuring, in a paper on Greece's options last month.
"The original creditors will have swapped place in the tumbrel with official lenders quite literally in the shadow of the guillotine."
Reuters calculations, based on a conservative estimate that official lenders -- EU governments, the IMF and ECB -- will hold about 160 billion euros in Greek debt two years from now, show that even eviscerating the entire value of the debt held by private creditors in 2013 would be insufficient to push Greece's debt-to-GDP ratio down to the EU's formal ceiling of 60 percent.
Even if one assumes the EU and ECB are treated the same as private creditors, the overall haircut would still have to be a whopping 68 percent to return the Greek debt ratio to that level.
Would Europe accept such losses?
Doing so would amount to political suicide for many of the bloc's leaders. For the ECB the blow to its reputation, and future role as lender of last resort would be at least as traumatic.
The central bank bought an estimated 40-50 billion euros in Greek debt at the height of the crisis, but those bonds were bought at a discount and a haircut on them would be manageable.
The real risk to the ECB is via the Greek debt -- both government and government-guaranteed -- that it has accepted as collateral in its lending to Greek and other banks.
When these exposures are combined, they amount to 194 billion euros, analysts at JP Morgan have estimated -- roughly equivalent to the annual economic output of the Czech Republic.
Add in the euro zone's exposure to countries like Ireland and Portugal, which could come under pressure to restructure as well if Greece went down this road, and the risks multiply further.
Fears about its own balance sheet go a long way to explaining the dire warnings from ECB officials that a Greek debt restructuring would unleash chaos similar to that seen after the 2008 collapse of U.S. investment bank Lehman Brothers.
"If the bank exposure was impaired this could be very serious for the ECB," a chief economist at a major European bank said, requesting anonymity because of the sensitivity of the issue.
What about the banks themselves?
The hit to the Greek banking system, which holds close to 50 billion euros in Greek sovereign bonds, would be the hardest.
JP Morgan estimates that a haircut of 50 percent on Greek debt now could reduce equity in the Greek banking system to just 4 billion euros, or 1 percent of assets -- a powerful hit that would require recapitalisation stretching the country's 10 billion euro Financial Stability Fund (FSF).
However, those losses would be much smaller if a restructuring took place in mid-2013, according to the bank's analysts, as the average maturity on the bonds they hold is five years and roughly 10 billion euros matures each year.
For European banks outside Greece, the headline sovereign debt exposure number looks manageable at roughly 65 billion euros, with German institutions holding 26 billion and French nearly 20 billion, according to the most recent data from the Bank for International Settlements (BIS). Add in their exposure to Greek private sector loans, repos, guarantees and credit commitments, however, and the figure swells to over 200 billion euros, led by France at 92 billion.
For leaders in Berlin and Paris, giving these banks a few more years to build up provisions and allow some of their Greek debt to mature would seem to make a lot of sense.
HOW DOES IT END?
But what happens once 2013 rolls around?
It seems clear that private holders of Greek debt will be forced to take major losses. What is less obvious is whether that will be enough to deliver Greece the relief it needs and pave the way for its return to the markets.
Until that happens, more European money will need to go to Athens. How long can that go on without sparking a political backlash in Berlin, Helsinki and other European capitals?
German Chancellor Angela Merkel faces an election in September 2013, just as the Greek debt crisis could be coming to its ominous climax. Two years from now, will she be able to sell the idea of keeping Greece on life support to German lawmakers and citizens who are already balking at it?
Rogoff at Harvard University believes the euro zone can emerge stronger from the crisis, but says some form of breakup may be unavoidable.
"I would recommend that Greece take a sabbatical from the euro zone, do a massive currency devaluation and then re-enter at a later date, although I realise there is a very strong political commitment not to let that happen," Rogoff said.
He is not alone. A growing number of economists and bankers who have looked at the Greek debt issue closely are coming to the view that the clash between economic and political forces within the euro zone may lead it to splinter, even if the costs -- to both Greece and other members -- would be huge.
If Greece were to leave the bloc it would have to hive off its bank deposits from the rest of the euro zone banking system as it introduced a new currency, risking a run on its banks and huge disruption for its companies.
Banks across Europe would face losses on their Greek debt, trade flows would be disrupted and social unrest could result.
"Two years ago I would have said it was impossible in theory and practice," a European banker, who requested anonymity, told Reuters.
"Today it at least seems theoretically possible. When I visit Berlin I hear people thinking aloud either about exclusion or about a voluntary exit," he said. "But it would be the worst scenario possible for all concerned. It's a lose-lose-lose proposition."
(Writing by Noah Barkin; Editing by Simon Robinson and Sara Ledwith, sourced Reuters)
It is reported that ArcelorMittal Galati management will be penalized for having treated with indifference a vegetation fire broke out in South Lake Malina.
ArcelorMittal Galati is better to pay ROL 50,000 for a fire broke out in the growing South Lake Malina fire that destroyed about two hectares of vegetation. Plant management has not announced any competent authority on the production of this incident. The fire was accidentally discovered by the commissioners of Galati Environment Guard.
According to them, good for a few hours, the fire burned the vegetation without anyone to take any action.
Mr John Abraham, a spokesman for the Environment Guard Galati, said that "ArcelorMittal would have to notify the authorities, including us. This did not happen. Nobody said anything. I have discovered for them what was going on. At that time we were in a planned combined control."
Mr Vespasian Smith director of environment of the Galati steel plant said that he knew nothing about this incident and even less about the fine to be imposed on the firm.
Last time mill fined Environment Guard in 2010, an amount of ROL 100,000 for the failure of the measures in the integrated environmental permit compliance.
The steel will be fined according to the Ordinance 195/2005 on the basis of the article states that environmental protection is the duty of all individuals and businesses, which must inform the competent authorities in case of accidental environmental pollutants or major accident.
Mr Dorian Dumitrescu spokesman of ArcelorMittal Galati said that "Our company has been notified of the fine but we will investigate the incident internally raised." (sourced adevarul.ro)
The decision to build two independent positions of desulphurization of pig iron in Dąbrowa steel was dictated by the growing demand for highly processed steel and the new species.
Additionally, the installation will enable further optimization of the process and reduce costs. Built before dwustanowiskowy ladle furnace and the installation of desulphurization is open salads are closing the entire production cycle semis. The lower the sulfur content of pig iron for steel production allows for higher performance.
Mr Sanjay Samaddar chairman & CEO of ArcelorMittal Poland said that "In 2009 and 2010 realized investment, so that we can offer our customers products High converted. We make sure that the steel produced in steel mills ArcelorMittal Poland as far as possible correspond to the changing needs of specific market segments."
Permission to build two independent positions of desulphurization of pig iron in ArcelorMittal Poland issued in April 2008 in the Office of Municipal Hall. For the supply of technology and equipment corresponds to an American company, Vulcan.
Construction work done Nike PB from Sosnowiec, in turn, electric ZEN Sp. z oo, Dąbrowa Mining. Structures, piping and installation of equipment made Mostostal Zabrze ZMP Katowice, construction supervision and led the company Unimed. (sourced wnp.pl)
Reuters reported that Brazil's Rio de Janeiro state ordered a halt to ThyssenKrupp's plan to expand its USD 6.5 billion Rio de Janeiro slab mill until work on pollution control systems is complete.
The state's environment secretary, Mr Carlos Minc, announced the work embargo in a statement on the environmental secretariat's Web site on Wednesday.
Mr Minc said the state has given the company one month to cover a pit used to hold hot metal, coal and gases in an emergency.
Until the work is complete, construction of a third coking-coal unit at ThyssenKrupp's Cia. Siderurgica do Atlantica mill in the city of Rio de Janeiro must stop.
Pollution from the plant, which began operation last year has brought protests from nearby residents and resulted in fines from local environmental authorities.
Production problems have led to emergency emissions of a "silvery" cloud made up of 70% carbon and 30% iron that is damaging the health of nearby residents.
The mill is designed to produce as much as 5 million tonnes of steel slabs a year using iron ore from Rio de Janeiro based Vale SA. ThyssenKrupp owns 73% of CSA and Vale 27%.
ThyssenKrupp ships the slabs to rolling mills in the United States and Europe for processing into flat steel products. (sourced from Reuters)
Thursday, 12 May 2011
South Africa's trade minister Mr Rob Davies said that he expects ArcelorMittal South Africa Limited and Kumba Iron Ore Limited to ensure iron ore supplies continue after an interim pricing agreement expires in July 2011.
Mr Davies said in an interview in Cape Town that "I am led to believe we are not likely to have the same disruption that we had last year. We want to ensure we get a competitive price for downstream users of steel."
Mr Davies said that "ArcelorMittal is the largest shareholder in the South African company, while Kumba is a unit of Anglo American Plc. South Africa's government also wants to ensure a plan by Wal Mart Stores Inc to buy a 51% stake in Johannesburg based Massmart Holdings Limited doesn't have negative consequences for jobs in South Africa."
The minister reiterated concerns about the strength of the rand, which has surged 40% against the dollar since the start of 2009. He said that "We have an overvalued currency driven by flows of capital. The over valued currency is having a detrimental impact on a number of industrial activities."
In March 2010, Pretoria based Kumba canceled a nine year deal that compelled it to supply ore from its Sishen mine to ArcelorMittal at 3% more than the cost of production after the steelmaker missed a deadline to renew mineral rights. The steelmaker said the decision could force it to close its Saldanha mill, cut all exports and fire as many as 4,000 workers.
The companies reached agreement on an interim supply accord on July 22 under which ArcelorMittal will pay USD 50 a tonne for ore supplied to its Saldanha mill on South Africa's west coast and USD 70 a tonne for deliveries to its two inland mills. The companies are currently in arbitration over the ore supply contract. (sourced bloomberg)
Contrary to the expectation that steel prices would start looking up in Europe, it is reported that plates prices on Italian domestic market are again decreasing.
As per latest reports, local producers have decreased actual offers by EUR 10 per tonne to EUR 20 per tonne, with bookings going around UR 610 per tonne to EUR 620 per tonne from previous EUR 630 per tonne to EUR 640 per tonne.
However, Russian Mills are quoting for June production price levels basically same as for May. For more visit steelguru
According to a recent Reuters article, China often faces power shortages in the middle of winter and middle of summer, respectfully, when heating and cooling demands are at their highest; but this year, power shortages have started two months early and look to be the worse yet.
The blame falls largely on the shoulders of Beijing. For years, they have controlled the price at which generators can sell electricity in the market, which worked relatively well when domestic demand could be met by domestic coal supply at a reasonable price, but the cost of coal production has risen, in part because coal mines and coal consumption are geographically some way apart.
Imports can make up the difference, and are largely met by Australia and Indonesia. But as imports have risen, this demand has impacted the global coal market, driving up the price such that generators are caught between a capped sales market for power and a rising raw material cost based on global coal prices. Imports have been strong for much of 2009-10 as this graph from HSBC shows, but the tide could be turning this year.
The report cited one official from the Provincial Power Fuel Corp as saying that local Power plants are purchasing coal mainly from Indonesia as well as Australia, Russia and South Africa to build up stocks and adjust coal quality, because of insufficient domestic supply.
The report said that the imported coal is firstly shipped to Wenzhou, Ningbo and Nantong ports, and then railed to plants in Jiangxi, , adding the cost averagely is CNY 100 per tonne higher than domestic supplies. In 2011, Jiangxi would have to rely on other provinces or overseas suppliers for 70% of its power coal demand, nearly 1/3 of which would be imported coal or even 50% and more in some areas.
Jiangxi province, which mainly purchases coal from Shanxi and Shaanxi, now finds it hard to get supplies, due to transport constraints and rush buying in China. It also buys coal from Henan and Anhui provinces, which however are prioritizing supplies for local power generation.
(Sourced from en.sxcoal.com)
Thursday, 12 May 2011
African Minerals has expressed renewed hopes for a revised arrangement with Chinese steel company Shandong Iron & Steel Group following a recent proposed USD 1.5 billion investment in the flagship Tonkolili iron ore project and related infrastructure.
According to regulatory news service on the London Stock market in the UK, the legally binding and exclusive MoU, which requires final contractual documentation to be prepared, supersedes all previous agreements with Shandong and reflects the considerable progress made at the company since discussions between AML and SISG began in July 2010.
The consideration, expected to be paid in full on closing and payable either in cash or by demand bank guarantee would accelerate the development of the mine operation at Tonkolili and for construction of the related infrastructure in Sierra Leone.
Mr Frank Timis executive chairman of African Minerals said that “We are delighted to have further developed our relationship towards a formal partnership with one of the world’s largest steel mills. Upon completion, Shandong’s proposed strategic investment would provide us with the financial strength to accelerate the development of the Tonkolili Project and the agreement also provides a buyer for a significant proportion of our iron ore product.”
“The investment by Shandong would give us the ability to pay down the current debt, and to commit to our Phase II expansion at an earlier stage thereby providing significant benefits to the Company, its shareholders, SISG, and the Government and People of Sierra Leone. Meanwhile, further progress has been made by SISG towards completing its due diligence, and this process is substantially complete. The exclusivity period with SISG runs to the end of May 2011 and the parties are working to finalize the agreements by that time.”
African Minerals is developing the wholly owned Tonkolili iron ore project in Sierra Leone, with a JORC compliant resource of 12.8 billion tonnes. The project, which currently has a 60+ year mine-life, is being developed in 3 phases. Phase I of the project is fully funded and at full capacity is expected to produce 12 million tonnes of iron ore per annum once it ramps up from initial production in the last quarter of 2011. Phases II and III are expected to boost production incrementally by 23 million tonnes per annum (Mtpa) and 45Mtpa respectively. African Minerals and its contractors currently employ approximately 3,600 people in Sierra Leone, 78% of whom are Sierra Leonean nationals. Stay with Sierra Express Media, for your trusted place in news!
The data showed that coal transported to the port via railway fell 25.21% or 890,000 tonnes on month due to overhaul to Daqin railway. Coal stockpiles at SDIC Jingtang port, which tumbled 39.79% or 764,800 tonnes from the previous month to 1.16 million tones on average per day in April was merely 790,000 tonnes ended Apr 30, the lowest level since 2011.
(sourced from en.sxcoal.com)
Thursday, 12 May 2011
Coal prices are inevitably following the oil markets downwards, while players assess the impact of disruptions to German river deliveries.
According to one broker, the front month contract in the API 2 window last traded down USD 2.75 on the previous session’s close, at USD 125.25 per tonne while the front quarter was down by a more modest USD 0.80 at USD 124.45 per tonne.
One London based coal analyst with a large investment bank said that “Energy traders across the world were staring at a collapsing crude price. Coal was relatively solid in the face of this, with the benchmark Cal 12 API 2 contract dropping just 2%.”
Noting this may indicate that there is less speculative length in the coal market. Meanwhile, the European coal market is focusing its attention on Germany, where water levels on sections of the Rhine a key inland transport route for coal are more than 50% below average, according to German weather service Wetter Online. (sourced from Montel)
Just after economic development minister Mr Ebrahim Patel told delegates to the World Economic Forum on Africa that the days of simply transporting iron ore down the long Sishen to Saldanha rail route to be shipped abroad for benefication should be rethought, a question in Parliament shows that there are no short term plans for a change to this practice.
In a reply to Mr Mlindi Nhanha of Cope, public enterprises minister Mr Malusi Gibaba confirmed that Transnet was in the process of acquiring 32 locomotives from Mitsui in Japan.
He not only noted that no company had tendered for the contract to deliver them because the procurement of these additional 32 locomotives was confirmed to Mitsui, but that Transnet selected Mitsui because it is already manufacturing 44 of this specification of locomotives.
Asked by Mr Nhanha for the value of the transaction, he said that this could not be made public because it is commercially sensitive.
From May to September 2012, two engines a month would be delivered. Three would arrive in October 2012, two in November 2012 and one in December 2012. In 2013, two a month would be delivered from January to April 2013, rising to three in May 2013, dropping again to two a month in June and July and then the last one of the 32 would be delivered in August 2011.
According to Engineering News, in March 2011, newly appointed Transnet CEO Mr Brian Molefe reported that the locomotives would be ordered to boost capacity to 61 million tonnes a year on the 860 kilometers iron ore line. They will fall under the command of Transnet subsidiary Transnet Freight Rail. (sourced from www.iol.co.za)
Arch Coal, Inc announced that it has established a new subsidiary, Arch Coal Asia Pacific Pte Ltd and named Renato Paladino president.
Mr Steven F Leer Arch's chairman and chief executive officer said that "Countries in the Asia Pacific region are leading a coal market supercycle, With an expanded presence in the Asia-Pacific region, Arch Coal expects to extend its reach and seize new market opportunities as developing countries demand more and more energy."
Paladino will be responsible for Asia Pacific regional business development, marketing and sales of thermal and metallurgical products, and regional supply chain expansion for the company. The new office will be located in Singapore. Mr Paladino will report to Arch's president and chief operating officer Mr John W Eaves.
Mr Eaves said that "Renato brings a proven track record and an advantageous blend of marketing, technical and business development skills to Arch's global sales efforts. We look forward to Renato's leadership as we expand our participation in the high-growth Asia-Pacific market."
Most recently, Paladino served as chief marketing officer of Hancock Prospecting Pty, Ltd. in Brisbane, Australia, where he had ultimate responsibility for marketing coal and iron ore. Prior to joining Hancock, Paladino worked for Brazilian minerals company Vale between 1985 and 2009, serving most recently as global managing director of coal. During his 24 year tenure with Vale, he held various business positions in Brisbane, Shanghai, Brussels, Rio de Janeiro and Tokyo. (sourced steelguru)
Indian state owned power companies whose coal blocks were taken back last week have questioned the government's move to revoke their licenses while sparing private companies.
Public sector firms, including NTPC, Damodar Valley Corporation, Andhra Pradesh Power Generation Corp and Jharkhand State Electricity Board, said they have invested huge sums in developing the mines while many private firms have not even begun preliminary groundwork.
A senior coal ministry official, however, said the decision to cancel allocations was made after a thorough evaluation.
Earlier the coal ministry decided to revoke licenses of 14 coal blocks, 12 of which belonged to state run companies. The blocks were de allocated because the mines were not developed on time. But the ministry action came as a surprise because this was the first time when so many blocks were de allocated in one go. The ministry had so far cancelled only 10 blocks but that was over several years. The blocks will now go to state run Coal India.
A report of a review committee headed by coal ministry additional secretary Mr Alok Perti had recommended issuing cancellation orders to 26 firms, including private players like TATA Steel, Hindalco Industries, JSW Steel and Jindal Power. However, coal blocks of only two private companies Shree Baidyanath Ayurved and Bhatia International have been revoked.
NTPC has invested over INR 300 crore in the five mines which were cancelled, CMD Mr Arup Roy Choudhury said that his company had a better record in mines development in comparison to CIL. He added that "The progress made by us is comparable with international benchmarks. The decision will be detrimental for the nation. We are sure to convince the ministry of coal."
An NTPC official said the ministry was apprised at the review meeting about the issues delaying the development of the blocks. He added that "They had appreciated and assured us that the mines would not be taken back.”
Jharkhand State Electricity Board chairman Mr Shiv Basant said that "This is an unfair decision. We would take a follow-up action soon. We got the detailed exploration conducted ourselves as CMPDIL refused to do it for us. We had told the ministry about the law and order situation. This came as a surprise to us. At least we are making efforts unlike some private companies who have not made any progress at all."
Andhra Pradesh Power Generation Corp CMD MrS Bhattacharyya said the company's board would meet shortly to decide its course of action. He said that "We are preparing detailed project reports. Instead of taking decisions based on set milestones, the government should consider cases on individual basis.”
Ministry rules said that an opencast mine should become operational within 36 months while underground mines in 48 months. An additional six months is allowed if the block is in a forest.
(sourced from ET)
Newcastle ships out coal produced in Australia's eastern state of New South Wales and some coal production has slowed due to wet weather in the region, according to market sources. But the region has escaped the large-scale mine shutdowns seen due to flooding in neighboring Queensland state.
The vessel queue at the port rose to five ships last week from three, while the average waiting time for vessels at the port dropped by nearly three days to 1.85 days. (sourced Reuters)
Thursday, 12 May 2011
Colombia Clean Power & Fuels Inc announced today that it has finalized the acquisition of additional metallurgical coal concessions totaling approximately 3,300 hectares. The properties are located near the town of Otanche, in the district of Boyaca.
The concessions contain three contiguous areas, two of which are already permitted for mining operations. The Company expects the Otanche acquisitions to substantially accelerate its commercialization timeline for mining operations. CCPF has signed and filed definitive agreements before the Colombian Institute of Mining and Geology, Colombia's coal authority, and expects full transfer of the titles within 40 days.
Mr Graham Chapman COO said “The Otanche acquisition is a major milestone in our coal prospect acquisition strategy in Colombia. More importantly, with an approved mining plan and two exploratory drills on location, Otanche represents an opportunity for us to move rapidly to prove reserves and commence commercial operations. Based on initial drilling results, the coal at Otanche appears to be predominantly low and mid-volatility metallurgical coal of very high quality. We believe the coal from Otanche will prove suitable for use in our planned heat recovery coking plant without washing or blending with other coals, which we expect to confirm as we receive additional exploration results.”
The Company's due diligence included access to preliminary drilling that was completed by a previous owner of the property, full legal due diligence and preliminary exploratory drilling by the Company. In addition, the entire area is being mapped geologically to identify and sample the coal outcrops. The first exploration hole has been completed and revealed seam horizons and coal qualities consistent with potential for significant metallurgical coal resources.
Mr Carlos Soto, President of the Company's operating subsidiary in Colombia, Colombia Clean Power, SAS, added, "All data collected from Otanche is being loaded into a Vulcan database to produce a geological model after which a mining model will follow. A leading contracting company in Colombia is developing a conceptual mine plan, which will be verified by independent international experts prior to implementation. Thus far, a provisional portal position has been defined and work is focusing on the transport route from the proposed mine portal to the existing road network."
Colombia Clean Power & Fuels Inc is developing coal mining, coal coking and clean coal technology operations in the Republic of Colombia. The Company plans to build mines to produce both metallurgical coal and high grade thermal coal and implement advanced coal technologies, such as coal gasification and coal to liquids, to produce metallurgical coke, urea, liquid fuels, power and other clean energy solutions. Colombia is the world's tenth largest producer and fourth largest exporter of coal, with an estimated 7 billion tonnes of recoverable reserves and 17 billion tonnes of potential reserves. (sourced steelguru)
According to Energy Publishing Inc, metallurgical coal prices were mixed this week on the US spot market amid slack demand. Spot prices for low volatility coking coal rose USD 1 or 0.3%, to USD 316.50 a ton in the week ended May 6th 2011.
The Tennessee based data provider reported that high volatility coal fell USD 12 or 4.1%, to USD 280. Energy Publishing said that “There is little activity, indicating that global buyers have what they need for now.”
The data provider said that it surveys buyers and sellers of coal to determine pricing.
(sourced from Bloomberg)
Thursday, 12 May 2011
Coal prices at South Africa’s Richards Bay Coal Terminal, the continent’s biggest export facility for the fuel, rose to the highest in almost a month on stronger Atlantic-market demand and speculation China may raise imports.
Data from Petersfield, England based researcher IHS McCloskey showed that prices gained 0.3% to USD 123.93 a metric tonne on May 3 to 6, the highest level since the week ended April 15. They’ve risen 33 percent in the past 12 months.
Mr Colin Hamilton a London based analyst at Macquarie Group Ltd said that “Stocks are being drawn down in the Atlantic basin and Germany has shut some of its nuclear plants.” He said that there’s speculation China may come back more aggressively to the international market.
Chinese thermal coal prices at Qinhuangdao port, the benchmark price for the country, are at the highest since August 2008. That may make Australian and Indonesian supplies more attractive after stocks at the port dropped 36% since March 4. German Chancellor Angela Merkel has put an extension of nuclear energy under review and ordered a three-month halt of the country’s oldest reactors for checks. (sourced from Bloomberg)
SYDNEY May 12 (Reuters) - Australian steel producer BlueScope Steel has cut its earnings guidance due to the strong Australian dollar, falling global steel prices and demand weakness in the domestic distribution and pipe and tube markets.
BlueScope now expects to report a "small" net loss after tax for its fiscal second half, below a February forecast for breaking even, the company said in a statement on Thursday. (Reporting by Balazs Koranyi; editing by Michael Smith, sourced Thomson Reuters)
Wednesday, May 11, 2011
* Physical market seen on "temporary switch-off"
* Indian 63.5 ore quoted at $187-$189/T-Umetal
* China April iron ore imports fall 11.1 pct vs March
By Manolo Serapio Jr
SINGAPORE, May 10 (Reuters) - Spot iron ore prices slipped with demand from top buyer China remaining slow as steelmakers waited for further price declines, although offers for the steelmaking raw material were steady on Tuesday.
Indian ore with 63.5 percent iron content was quoted at $187-$189 a tonne, including freight, in China on Tuesday, unchanged from the previous day, Chinese consultancy Umetal said.
"Purchases are getting less. People want to wait and see whether prices will drop further," said an iron ore trader in Shenzhen.
"Chinese mills have some stocks at the moment so they don't need to hurry to get cargo. But I'm sure they will buy again, may be by the end of this month or at the start of June.
Demand from Chinese steelmakers along with tight supplies had helped spot iron ore prices rise to record highs near $200 a tonne in February. But prices have struggled to keep gains since then as Chinese appetite eased given slow demand for steel.
"The physical iron ore market uncertainty prevailed as it enters a new week with the downward inertia of last week," London Dry Bulk said in a note.
"The present silence is being taken as a temporary switch-off," it said, adding traders were not seeing a sharp drop in prices.
Iron ore indexes, which follow the Chinese spot market and are used by global miners like Vale and Rio Tinto in pricing supply contracts, extended losses on Monday.
Platts 62 percent iron ore index IODBZ00-PLT eased 50 cents to $182 a tonne, lowest since April 26.
A similar benchmark by Steel Index .IO62-CNI=SI slipped a dollar to $179.70, while Metal Bulletin's 62 percent gauge .IO62-CNO=MB dropped 78 cents to $180.92, both indexes at their lowest since April 27.
Uncertainty over the outlook for steel demand has prompted Baoshan Iron & Steel to keep prices of its main steel products unchanged for June bookings.
Baosteel's move comes after price cuts in May which was its first reduction in nine months.
Chinese steelmakers look to steel prices when deciding on import plans for iron ore, the key steelmaking ingredient.
Data on Tuesday showed China's iron ore imports fell more than 11 percent to 52.88 million tonnes in April from the previous month.
Shanghai rebar futures were modestly higher on Tuesday, but stayed near two-week lows touched on Monday. The most active October contract on the Shanghai Futures Exchange gained 0.1 percent to 4,836 yuan per tonne by 0625 GMT. (Editing by Himani Sarkar, sourced Thomson Reuters)
by Morningstar Credit Committee
We are lowering our issuer rating for Cliffs Natural Resources CLF to BBB- from BBB in anticipation of the acquisition of Consolidated Thompson for $4.9 billion in cash. While the deal affords additional exposure to the presently lucrative seaborne iron ore trade, the additional debt Cliffs will assume to consummate the deal and the higher cash flow volatility associated with seaborne iron ore pricing make the acquisition a credit negative, in our opinion.
Cliffs entered 2010 with $1.7 billion in gross debt, roughly 1.0 times the $1.6 billion in EBITDA generated for the year (strong, but not especially so relative to mining peers). We expect the $4.9 billion deal will add about $2.25 billion more debt to Cliffs' balance sheet, putting pro forma 2011 debt at $3.96 billion. We assume Cliffs will finance the deal with proceeds from $1.25 billion in term loans, $1.0 billion in senior unsecured notes issued in March, and $1.0 billion in new equity. Cash on the books (including proceeds from September 2010's $1 billion note issuance plus accumulated free cash flow) would fund the remainder. While the term loan and notes portions were nailed down after the deal's January announcement, Cliffs has not yet finalized the amount of the new equity it will issue, saying only that it would size the offering with an eye toward retaining its Baa3/BBB- ratings with the nationally recognized statistical rating organizations.
Assuming iron ore prices remain elevated, we expect Cliffs to have little difficulty paying down the new debt should management wish to do so. If we see continued strength in iron ore over the next few years and management directs free cash flows to debt retirement, we will revisit our rating for potential upgrade. But it's worth recalling just how exceptional today's price levels are. In only two of the past seven years were seaborne pellet prices materially above Cliffs' current cost of production in North America ($72 per ton including depreciation expense): $153 per ton in 2010 and $146 per ton in 2008. In the remainder of those years (hardly a bad time to be an iron ore producer), seaborne pellet prices averaged $69 per ton.
In assessing the credit implications of the deal, we think it's important to note that, in contrast to Cliffs' existing North American operations, which sell almost exclusively to North American steel producers at prices set by a volatility-reducing three-part mechanism, Thompson's eastern Canada Bloom Lake sells to the seaborne market at prices set by a quarterly mechanism based on the trailing spot price in China. At present, this means Bloom Lake can garner much higher FOB realizations than Cliffs can earn on its existing North American operations. But in weaker markets for seaborne iron ore, the reverse is typically true. In fact, that's one of the factors that had underpinned our BBB issuer rating for Cliffs: While the North American pricing arrangement effectively prevents Cliffs from realizing price increases commensurate with those garnered by seaborne iron ore producers when times are good, it also mitigates the risks associated with dramatic declines in the spot market for iron ore. The addition of Bloom Lake and recent management actions to move away from the three-part mechanism in its existing operations increase Cliffs' aggregate exposure to the vagaries of the seaborne market, for good or for ill. While potentially a brilliant move for shareholders, we view this as a negative development from a credit perspective.
Looking at Cliffs' outstanding bonds, we don't think prevailing spreads adequately compensate investors for the risk associated with a decline in seaborne iron ore prices. Cliffs' 2020s currently trade at Treasuries plus 135 basis points and the 2040s at T+175, quite a bit tighter than we think appropriate. For context, the average BBB issue in Morningstar's corporate bond index offers a spread of 157 basis points above Treasuries (average term of 11.5 years) and the average BBB- trades at T+202 (average term of 9.5 years).
We think bonds of mining peer Southern Copper SCCO (rating: BBB+) are a much better play at the moment. With the lowest cash cost of any large copper miner, Southern Copper is unusually well insulated from a drop in commodity prices. In contrast to peers that were forced to tap the market for additional capital in the dark days of early 2009, Southern Copper's mines were generating enough free cash flow for the company to proceed with expansion plans and buy back shares. Southern Copper's 2020s trade at T+187 and 2040s at T+242, well wide of Cliffs' comparably dated notes, despite offering, in our view, superior credit quality. (Morning Star)
Wednesday 11 May 2011, 11:26 AM
By Philip Blenkinsop
BRUSSELS (Reuters) - ArcelorMittal, the world's largest steelmaker, forecast strong prices and shipments that would propel earnings to a post-crisis high in the second quarter following a sharp rebound at the start of the year.
The group, which makes 6 to 7 percent of global steel, reported first-quarter earnings above expectations, after steel prices caught up with a spike in iron ore and coking coal costs and demand steadily grew from the auto and engineering sectors.
The Luxembourg-based company said core profit should be between $3 billion and $3.5 billion in the second quarter, the highest level since third quarter of 2008, just before the global steel sector went into freefall.
"As anticipated, we have seen a stronger start to the year, with an increase in both shipments and selling prices," Chief Executive Lakshmi Mittal said in a statement.
"This is expected to further improve in the second quarter as the underlying demand recovery continues. We remain confident that 2011 will be a stronger year than 2010."
ArcelorMittal said its blast furnaces would be running at 80 percent of capacity in the second quarter, up from 75 percent in the first three months.
Core profit (EBITDA) in the first quarter was $2.58 billion, higher than the $2.40 billion average forecast in a Reuters poll of 17 banks and brokers.
That represented a 39 percent improvement from the final three months of 2010, when a raw material price spike squeezed margins.
From mid-July to mid-November 2010, Metal Bulletin's MBIO index of Chinese iron ore prices rose some 37 percent, while steel prices in Europe dropped 7 percent.
From then until the end of March, steel prices have shot up 32 percent, while iron ore only made up 10 percent, according to Metal Bulletin, although this positive sector price trend reversed in April.
Many steel contracts for a given quarter are set during the previous three-month period, meaning that the pick-up of steel prices should influence first-quarter sector earnings, but only have a full impact from the second quarter.
Analysts are divided on what will happen in the second half of the year to the $500 billion steel sector, seen by many as a proxy for the global economy. The question is if there will be a repeat of last year's margin compression.
Bears point to a large price differential between Asia and other markets, a weak construction market, spare capacity and a further rise in ore and coal costs.
Bulls say inventory levels are healthy, demand is improving and Chinese prices should rise rather than Western prices fall.
Steel trader Kloeckner & Co also reports results on Wednesday, followed by German steelmaker Salzgitter on Thursday and peer ThyssenKrupp on Friday.
The latter, along with Austria's Voestalpine, have benefited from their exposure to the booming German car and engineering sectors. Voestalpine raised its full-year outlook in February after a forecast-beating quarter, and said only the construction sector was still lagging.
ArcelorMittal investors also gained an insight on Wednesday into the health of the company's growing mining assets, for which it provided separate results for the first time. The group mining production profitability would also improve in the second quarter from the first three months.
(Editing by Rex Merrifield, Sourced Reuters)
Tuesday, May 10, 2011
Monday, May9, 2011
After the Japanese nuclear disaster, many countries have imposed new nuclear power plant moratoriums. This list even includes China, for the near term. Emerging markets growth means more need for electrical power. Many countries will use thermal coal power plants to provide this electrical power. This means more thermal coal use. China’s GDP for Q1 was near 10%, and India’s was 8%. As a whole, the World Bank estimates the world GDP will rise by 3.3% in 2011, and 50% of the electricity generated worldwide is from coal plants. China accounted for 70+% of the growth in the coal consumption recently. Most expect this general trend to continue. If China’s GDP is still growing at approximately 10%, the demand for coal is growing rapidly. In addition, there has been damage to the coal infrastructure with the storms/flooding in Queensland Australia. Japan is expected to replace its lost nuclear generated electricity (approx. 10% of total Japanese electrical capacity) with mostly coal-generated electricity. The growth in coal consumption is an unassailable fact for the near term.
Taking a brief technical look at the markets, one can see that coal stocks, as represented by the proxy of the KOL ETF (KOL), are at oversold levels in the short term.
The 1 year chart of KOL:
Both the Williams %R indicator and the Fast Stochastic indicator show KOL as oversold. Neither one indicates that coal cannot become more oversold. In fact, if oil continues to sell off, it seems likely coal will follow along with it. The 2011 oil price target increase by JPM on Sat. May 7th may tend to push oil up instead. Currently oil is near $98. There is good support at $95. It hit $94.63 early Friday morning. The bounce off support there could continue if we get good economic news. Plus with Mutual Fund Monday, coal should follow oil.
Longer term, where coal goes may depend on tightening actions in China and India. It may depend on the state of the credit crisis in the EU. There seems to be a growing chance of a Greek default/haircut within the next few months.
More immediately, the recent good non-farm payrolls data may lift commodities such as oil and coal. However, the rally in the USD may tend to counteract this. The rally was started by Trichet‘s indication that there would be no ECB rate raise at the June ECB meeting. If the USD rally continues near term, it will tend to push commodities downward. Bad economic news will tend to push commodities downward. A continued USD rally will also tend to push the overall market downward, as it will likely cause at least a partial unwinding of the USD carry trade. Still, with the good non-farm Payrolls data Friday, the JPM oil price outlook raise, and the oversold conditions of coal equities, this might be a good time to start to average into your coal stock(s) position(s). At worst, you could trade short-term.
Longer term, the overall growth of thermal coal seems inevitable for the next 5+ years. The idea that fast growing, emerging market countries will use an increasing amount of thermal coal for an increasing amount of electricity generation is a solid one. The expected increase in the price of oil over that time should only help coal prices rise. With that in mind, the table below contains some of the fundamental data for several prominent thermal coal companies. The data in the table is from Yahoo Finance and TDameritrade.Irish PM Enda Kenny is strongly hinting that Ireland will give debt holders a haircut and at least some of its banks. Portugal has tentatively agreed to an EU/IMF bailout. However, it has no government until the early June elections. The last government was dissolved because it would not approve an austerity package, which was a necessary prerequisite to a bailout. The Finns, with significant opposition from the True Finns, may not be able to get approval for the Portugal bailout through their Parliament. They must legally do this before Finland can agree to the bailout. Given the current uncertainty about Greek repayment, the Portugal bailout is uncertain at best. In sum, the EU credit crisis could easily escalate to a post Lehman Brothers-like “credit seize up” at almost any time. Any prudent investor will be watching this situation carefully. Still, the markets do like to "climb a wall of worry".
James River Coal (JRCC)
Cloud Peak Energy (CLD)
Consol Energy (CNX)
BHP Billiton (BHP)
Vale S.A. (VALE)
Analysts’ 1 year target price
Analysts’ Average Recommendation
Short Interest as a % of the Float
5 year EPS Growth Estimate per Annum
Total Debt/Total Capital (mrq)
Quick Ratio (mrq)
Interest Coverage (mrq)
Return on Equity (ttm)
EPS Growth (mrq)
EPS Growth (ttm)
Revenue Growth (mrq)
Revenue Growth (ttm)
Annual Dividend Rate
Operating Profit Margin (ttm)
Net Profit Margin (ttm)
From this table, BHP and VALE both look like solid companies with good growth prospects. You would probably be well off to invest in either. However, they are far from pure thermal coal plays. They are huge general miners. They mine iron ore, copper, gold, bauxite, etc. in addition to thermal coal. Still they are great miners, and one wouldn’t go too far wrong investing in either one. BHP would seem to have the better growth prospects of the two. It is the most likely to give good price performance. It also has substantial resources near China (Australia), while VALE is headquartered in Rio de Janeiro. Since China is a big coal importer, BHP’s location of substantial resources near China gives it a huge advantage over VALE.
Of the other 3 companies, Consol looks to be the most solid, with a 5 Year Growth Estimate per Annum of 10.00%. It also has very little short interest, which is a sign that most investors believe it is a strong stock. Of course, this means it cannot be manipulated upward (or downward) as quickly. It may give slower price performance movement compared to the other two more highly shorted thermal coal stocks.
In contrast, James River Coal has short interest as a percentage of the float of 39.20% (Yahoo Finance). It could move up quickly on earnings, which are on May 10, 2011. If it beats (and guides higher), JRCC’s stock price seems likely to rise rapidly. One might consider making a small bet on this over earnings. Monday is Mutual Fund Monday. That only leaves Tuesday to worry about. It has been my experience that a “too high” short interest almost ensures a short squeeze if earnings are at all palatable. You can get a May call $23/$26 call spread for only about $0.70.
For the long term, BHP, VALE, and CNX offer some strength in fundamentals with a goodly amount of growth. The prospects of JRCC and Cloud Peak are enticing,. However, these latter two may be stocks that prevent you from sleeping well. The former three are unlikely to cause nearly as much anxiety. Since I like to sleep at night, I would recommend you choose one or more of BHP, VALE and CNX. Since CNX is the only pure thermal coal play in the bunch, it may be a wise choice for an investment aimed at thermal coal.
The 1 year chart of KOL (as a proxy for coal stocks) appears above. Both the Fast Stochastic and the Williams %R indicators indicate an oversold condition exists for KOL. The individual coal stock charts indicate much the same thing. There is a good chance that coal is about to rally. This means that you can start to average into your position with some confidence of a good near term result.
(sourced : Seeking Alpha)