Archive for Coal

Another bad sign for the South African steel industry and future rail related traffic as AMSA reports

The South African Steel Industry is hit hard by he global slowdown in the market DEMAND for steel.

Reports today from multiple sources say for example that South Africa’s largest steel producer ArcelorMittal South Africa (AMSA) is giving notice that it is weighing the partial or full closure of its Vereeniging Works, in southern Gauteng. The Vereeniging mill is perhaps South Africa’s oldest steel plant — going back to 1911 as the Union Steel Corporation of South Africa.

Some market sources suggest that ArcelorMittal may soon make a trading statement indicating that the company might report a large loss per share in the half year to June 30. One source, Mining Weekly, has its reporters suggesting that it could be as much as “1,400% worse than the 2c/share loss incurred during the corresponding period last year.” Other South African steel companies like Highveld Steel and Vanadium are also reporting depressed commercial results.

This marks a continuing pattern of global declining prospects for ore, met coal, and scrap plus lower future business revenues for the railroads and ports that handle the steel related inputs and outputs.

Are the transporters changing their strategic plans or hoping their customers’ business patterns will suddenly change?

Go here for more reported details: http://m.miningweekly.com/article/poor-citizen-amsa-promises-to-mend-ways-as-it-seeks-support-to-save-vereeniging-and-company-2015-07-23

A railway freight traffic rally? // Not with this 13 year record drop in Commodity Prices

Published by Bloomberg, Jul 20, 2015

Oil has been reeling for about a year; now gold is getting slammed—

Commodities are at a 13-year low.

How will this affect your strategic plans?

To read the entire article, go to http://bloom.bg/1MDRHk3

The Bloomberg Commodities Index dropped to a 13-year low Monday…

That is weaker than after the banking meltdown of 2008 and the euro-zone crisis of 2012.

From wheat, to copper, to natural gas, little has escaped the rout.

If your waiting to start your new commodities based railway, it is time to review your strategic assumptions..

The Latest Sign That Coal Is Getting Killed // What is rail freight impact?

From Bloomberg, Jul 13, 2015

Coal is having a hard time lately. U.S. power plants are switching to natural gas, environmental restrictions are kicking in.. Prices have crashed, sure,. But for a real sense of coal’s diminishing prospects, check out what’s happening in the coal bond market.

Bonds are where coal companies turn to raise money for such things as new mines and environmental cleanups. But investors are increasingly reluctant to lend to them. Coal bond prices tumbled 17 percent in the second quarter, according to an analysis by Bloomberg Intelligence.

It’s the fourth consecutive quarter of price declines and the worst performance of any industry group by a long shot. Bonds fluctuate less than stocks, because the payoff is fixed and pretty much guaranteed as long as the borrower remains solvent.

A 17 percent decline is huge, and it happened at a time when other energy bonds—oil and gas—were rising.

Three of America’s biggest coal producers had the worst-performing bonds for the quarter:

Alpha Natural Resources: -70 percent

Peabody: -40 percent

Arch: -30 percent

To read the entire article, go to http://bloom.bg/1Hq3RK3

About 17 percent of U.S. coal-fired power generation will disappear over the next few years, according to an analysis by Bloomberg New Energy Finance.

Railway coal traffic loss will hurt rail profits somehow. As the markets shifts, how will rail companies respond?

Mining stocks // Valuation strategic drop is huge

The Big Three iron ore producers havebbeen particularly hard hit.

World number one BHP Billiton (NYSE:BHP) fell again in New York, bringing its losses since Friday to more than 8% before some late buying limited some of the damage. Melbourne-based BHP stock value is down 45% over the last year.

BHP total market worth dipped briefly below $100 billion last Tuesday. BHP peaked at a market cap of $280 billion in 2011.

The cumulative $180 billion loss in that one company’s value is almost impossible to comprehend.

HOW MUCH? In railroad terms that is about the equivalent as a loss in value to the total current value of about two BNSF railroads.

The BHP loss in value is about three to four times the assumed infrastructure investment that all of Africa says that it needs over the next two decades.

In South Africa the recently spun off by BHP named South32 is trading nearly 20% below its May 2015 listing value.

The drop in the shares of Vale continued with the Brazilian company tanking 4% to a decade low on Tuesday. Vale as the world’s top iron ore miner has lost 34% of its market value in 2015.

The globe’s second largest miner based on revenue Rio Tinto (which relies on copper and iron for nearly 80% of its earnings) dropped 4% in heavy volume. The Anglo-Australian giant’s stock is down more than 18% since February.

For more, read http://www.mining.com/china-panic-crushes-mining-stocks/

Miners’ focus shifts from investor returns to maybe survival

July 10 (Reuters) –

Hit hard by the accelerated downturn in metal prices, most global mining companies preparing to report results are likely to announce another round of austerity measures to cut costs and thereby convince investors to remain committed to the mining sector.

Outside of BHP and Rio Tinto, credit ratings and dividends are being pressured by a rout in prices on any commodity from iron ore to platinum. Directors are pressured by major stock holders to force reductions in capital expenditure, operational costs and jobs. Firing top managers is not out of the question.

Collectively, miners have been among the worst performers on London’s FTSE 100 index of blue-chip companies so far this year. The FTSE 350 mining index has fallen by about 15 percent since the start of the year. That is after a bad year in 2014.

“The picture has shifted to survival”… says Nik Stanojevic at British wealth manager Brewin Dolphin. High dividend yields and a boom in metal prices boosted mining shares from the turn of the century (2001 to 2011 with one interruption…

The downturn in prices since 2011 has exposed companies’ failure to allocate capital effectively and to shore up balance sheets, prompting many investors to take flight. Planners for ports and railways to support the old boom year should take note. New strategies need to emerge “or more heads may role” and investors walk away.

http://www.reuters.com/article/2015/07/10/mining-results-preview-idUSL8N0ZM22720150710

Competition for met coal sales to China in the summer of 2015

Reuters data http://mobile.reuters.com/article/idUSL3N0Z823E20150622?irpc=932

China’s imports of coking coal fell 24.2% to 14.7 million tonnes in the first four months of the 2015 from the same period last year.

Australia has about a 50% share of China’s imports Yet, shipments dropped 26.2 percent in the first four months as China’s steel production has fallen.

China’s imports from Mongolia increased by 9% to 4.5 million tonnes. It could have been higher if only Mongolia had a working export railway by now.

The next two largest coke coal suppliers are Canada and Russia. This year their shipments to China fell 14% and 39% respectively.

My technical observations.

MONGOLIA FUNDAMENTAL PROBLEMS as a COMPETITOR

The Mongolia customs price in northern China is about $46 a tonne as of April 2015. To that has to be added the rail cost to reach eastern Chinese steel producing markets. That adds a lot to the price given Mongolia’s poor rail infrastructure. It has zero heavy haul rail capability.

The quoted price from competing sources are $105 to $106 from Australia ~ $110 from Canada, ~ $93 from Russia mines Price to Japan Third quarter contracts for delivery from Australia to Japan were settled at $93 a tonne for premium hard coking coal, according to two people familiar with the negotiations says Reuters.

Back in 2012, the price was $330 a tonne.

The contract price tends to influence the spot price.

However, sellers need to price to a more reasonable long term contract rate to survive periodic economic down cycles.

Bloomberg reports negative China steel growth.

From Bloomberg, Jun 18, 2015

“Chinese steelmakers are deepening the first production cuts in a quarter century”…

As manufacturing steel production drops, there are economic signs to look for.

Possible “dumping” of finished steel.

Stockpiling of Chinese imported iron ore and coke.

More investor uncertainty about emerging nation blueprints for new mines, ports, and railways.

To read the entire Bloomberg news report, go to http://bloom.bg/1GTU0PI

Crude steel output will shrink as much as 2 percent this year, according to the China Iron & Steel Association. That is the first contraction since at least 1990.

A recent up tick in raw material costs for steel and a collapse in steel prices has pushed the Bloomberg Intelligence China Steel Profitability Index to the lowest in almost seven years.

To understand more about the prospects for adding more to the supply side of global trade, we need to know even more about the market demand side.  As China’s growth slows…    …so too will the need for more and more imported resources from greenfield projects.

So which greenfield projects will still be needed?

Mongolian Coal plan to Suppy the two Koreas may be a “boutique” market at best

Some news reports with grand headlines look more like political posturing than great commercial breakthroughs. What is the full story behind a press release?

This is the latest headline grabber, “Mongolian Coal Firm Signs Four-Nation Deal Including North Korea”.

The story was picked up by multiple news agencies, including Bloomberg as reported by Michael Kohn http://bloom.bg/1J75rG0

investors may require additional Independant due diligence about the rest of the story.

Here are a few professional observations based on my six years coverage of Mongolia’s railway exporting problems. The essential theme is that “distance matters”.

Getting to the Pacific Ports via the round about Russian connecting eastern Trans SIBERIAN rail route is physically possible. But at the distance involved, it may be a bad logistics route when costs per ton-km are calculated.

Plus, there may be too many SIBERIAN coal mine origins along the long route path to compete with these remote Mongolian origins. In the long run, Mongolian origins at best will likely be a marginal provider. If the route is too long. Is there enough volume to “show the flag”. Yes. Long term profit sustainable? Not unless the rail freight rate is priced as almost a donation.

Why would RUSSIA RZD “donate” scarce track access paths for !omgolian origin shippers that compete for export sales with a siberian mines? Geo-Resource politics might be a complex reason. Who can say?

From a publicity stand point, yes it appears that arranging the circuitous route can be “hailed as a major achievement” as stated to the news media by Batbaatar Bandan, the company’s chief executive officer. “For Mongolia to have four-country cooperation, I think it is historic,” he said at the signing of a memorandum of understanding. Note: this is a MOU. That is not a contract commitment.

The company would sell the coal to Mongol Sammok Logistics Co., a new joint venture between South Korea’s Sammok Shipping Co. It is also an arm of the Mongolian government says one source.

HOW FAR?

The coal has to moved more than 4,000 kilometers (2,500 miles) by train to the North Korean port in the city of Rason, via Russia. And then it has to rely on friendly rates and reliable train operation between the North and South Korean governments in order to cross North Korea into South Korea Sounds a bit risky.

Yes, they will likely move a trial load. But that proves little about long term reliable and sustainable route profitability. The shipper, Sharyn Gol, claims to reporters that it is “in a position to export several hundred thousand tons of coal per year.” From a due diligence view, that is a rail volume “niche market”.

Some claim a possible annual volume at some unknown future time of perhaps 300,000 metric tons of exports a year. But there is no pricing agreement yet.

Investors should probably check for “the rest of the story”. ———

The alternative is to take up the Chinese offer to use the China rail network via the Mongolian southern proposed rail gateways to reach the CHINESE Pacific ports and then use ocean barge or ocean ship to reach the Korean markets. That commercial offer was made almost a year ago by China and as of this point in the summer of 2015 appears “dead in the water”. There were limits I believe as to which rail inland gateways could be used, but all of the southern routes out of Mongolia are far shorter to reach the Pacific ports versus going through RUSSIA.

And distance does matter as a logistics cost. The Mongolians have collectively as a nation been wrestling with this rail access issue for almost a decade.

More evidence — This from PwC — of the global resource mine slowdown

Management consultants PwC have published another report about global trends in the mining industry.

Mine 2015 examines the 40 largest mining companies in the world.

Here are some tidbits.  Those 40 companies as a group are market valued today at about $800 billion. That represents a halving of their value calculated four years ago.

The report has the interesting name “The gloves are off”.

Pone take away is the mining Shareholders are literally “ticked off” about the estimated $27 billion in corporate write offs because of poor investment decisions made by overly aggressive managers between 2006 and 2013.

Under pressure from shareholders, many of the top 40 companies cut capital spending 20% in 2014. Many of the so called greenfield projects are the ones taking the biggest hit. The company exploration budgets have been particularly cut.

Over the last 2 years, “the majors cut back their exploration spending by more than half to about $4.9 billion in 2014. The drop was from about $6.3 billion spent in 2013 and $12 billion spent in 2012. This is consistent with trends reported by multiple otyerbnewscsources.

The report makes note that the so called junior miners in this list of 40 has witnessed the worst in terms of their ability as a market group to raise greenfield exploration capital.

Obviously, many of the supporting rail and port projects have also been hurt, suspended, or dropped.

Contact PwC for more details.

Are North American Freight Car Orders heading towards down cycle as crude oil production sags?

A previous near consensus 86,000 car forecast earlier for this year is dropping.

80,000 to 84,000 level may now be more more likely.  Or lower?

Tank cars, frack sand cars, and coal cars most likely to fall off the pace based on current spring railroad traffic reports.

From Bloomberg, 16 June

The agency reports that Greenbrier Cos. fell the most in almost seven months after Stifel Financial Corp. analysts estimated that railcar demand will be hurt by a decline in oil prices.

To read the entire article, go to http://bloom.bg/1FkFoDo

Stifel estimated production will be 84,000 railcars this year, less than transportation consultant FTR Associates’s outlook of 86,000.

History shows us how volatile the year to year North American rail car market can be as this SUPPLY SIDE changes to reflect DEMAND SIDE economics.