Tag Archive for coal

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?

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.

Even Peabody Energy is not immune to the global price fall in coal — and as its traffic drops so will rail traffic

From Wyoming to Mongolia, giant Peabody finds its market and financial position totally unlike back in the good old times of 2006. A new reality has hit hard for even this global giant. Nes reports say it is laying off about 250 corporate office positions.

http://trib.com/business/energy/updated-peabody-energy-to-lay-off-close-gillette-office/article_ccf4825e-c4df-5726-a93f-5567655a2e0d.html

A few highlights are:

Peabody Energy is the largest private coal company in the world.

It announced Monday it is cutting 250 corporate positions…

The layoffs amount to roughly 25 percent of the St. Louis-based company’s corporate and regional support positions.

Roughly 20 employees will be laid off in Gillette, Wyoming where Peabody employs 50 people at its regional office.

“… today’s announcement represents another necessary step to drive the company lower on the cost curve,” said Peabody CEO Greg Kellow.

The company is headquartered in St. Louis It has global investments including in Australia, China, and In Mongolia to name a few locations.

As it loses coal business, so do the railroads that serve its mines and customers.

 

COMPETITION. There is ALWAYS some form of completion versus rail

There is always some form of competition. That’s a lesson many of the world’s railway leaders too often forget.

And many government planners and rail regulators sometimes never understand this concept.Now, we see an illustration of these competitive forces here in the United States.

Read more

Bloomberg: India Fails to Get India Coal Trains Running…

Coal Field Express by Smeet Chowdhury, on Flickr

From Bloomberg, May 3, 2015: Prime Minster Narendra Modi’s plans to shift India’s economy toward manufacturing and away from agriculture and services are being held up by a coal shortage. Caused by the continued inability of the railroad to move the coal market “demanded” by its customers.

To read the entire article, go to http://bloom.bg/1PgQE9W

Observation

The railway simply does not have its service marketing act together yet. Promises are made, but progress is agonizingly slow. As a result, coal may actually be imported to get around the problems of poor rail service.

Critical points from Bloomberg report include these.

Actually, there’s plenty of coal, just not enough trains to get it to the power plants. While about 200 railway convoys arrive every day at Coal India Ltd.’s depots, Technical Director Nagendra Kumar said the company needs 230 of them.

“The (railway) infrastructure bottlenecks are stopping Coal India from rising to its full potential,” Choksey said.

Coal generates about 60 percent of India’s electricity. With output climbing at Coal India — and poor rail service — the fuel is piling up at the mines.

At the same time, slumping global prices mean customers are turning to imports from the likes of Glencore Plc, BHP Billiton Ltd. and Indonesia’s PT Bumi Resources. India’s coal imports jumped 33.5 percent to 242.4 million metric tons in the year ended March 31, according to data from Mjunction Services Ltd., a Kolkata. The figure may reach 260 million tons this year.

Power plants near ports often bring in imports by truck, unable to find enough railway cars. Dependence on coal imports is unjustified, as India has “huge” reserves of the fuel, Piyush Goyal, minister for coal, power and renewable energy, said in March. But it is the government that invests or does not invest in the necessary railways. Coal India has also called for the construction of three new railway lines that will help open new mines that can produce 300 million tons of the fuel every year.

Rail Giant Indian Railways, which has been in operation for 162 years, may be big, but it is not agile at modernizing its freight services.

“The logistical difficulties are a reason to worry,” said Debasish Mishra, a senior director at Deloitte Touche Tohmatsu India Pvt. in Mumbai. “My fear is we don’t have a quick solution to the (railway) problem.”

 

Bank of America has just dumped coal | is this the sustainable new pattern?

A gradual pattern shows that major capital backers are sliding away from coal projects.

Are global rail planners from India to South Africa and Mongolia paying attention? Or do they think this pattern will not affect their commercial fortune?

Time to ramp up the “due diligence.”

See story at: http://www.mining.com/bank-of-america-has-just-dumped-coal/