18 January 2019

Asset sell-down to fuel coal industry consolidation

Rewind back to just a few years ago, when state-owned power producers in China were racing to acquire coal assets even at top dollars, with coal seen as “black gold”. Fast-forward to the present, and things couldn’t be more different.

Now, not only are power producers like China Guodian Corp and SDIC Power Holdings (600886.CN) abandoning their coal assets, miners and other stated-owned enterprises are also putting up a “for sale” sign on their coal businesses. This obviously indicates that most are not optimistic about the coal price prospects this year. The downtrend, meanwhile, provides an opportunity for further consolidation among coal producers.

Wang Wenliang, general manager of SOE Yima Coal Group which is based in Henan, told the China Securities Journal that it is the best time for the industry to consolidate as it goes through its winter. In fact, mergers & acquisitions activities have already started climbing along with the coal price slide as buyers and sellers are more willing to close deals quickly.

2009 was the year when the commodity price went skyward, the prompting power plants to go on a coal asset buying spree in order to keep fuel costs in check. But in recent years, things didn’t go the way they planned.

Global demand shrank due to the financial crisis, and China’s economic slowdown in recent years also took a toll. Meanwhile, the Chinese government’s clean-energy drive led to increased emission control costs for coal-fired plants. Investors are therefore dumping coal assets, fearing that further decline in coal prices could erode their market value.

The Bohai-Rim Steam-Coal Price Index, which tracks power-station coal prices at six Chinese ports, has fallen 1.3 percent since the start of this year. Experts believe the downtrend will not change anytime soon, as the Chinese Securities Journal reported. In fact, the coal price index had tumbled from 800 yuan per ton at the beginning of 2012 to as low as 530 yuan last October before a moderate rebound toward the end of last year.

Elsewhere in the world, mining giants are also offloading coal assets. Rio Tinto had sold half of its stake in an Australia mine for US$1.02 billion. BHP Billiton and Vale SA are also holding up their coal mines assets for sale, according to the Journal.

– Contact the writer at [email protected]


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