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Senin, 13 Juni 2011

INDO COAL: Behind the closed door of Bali coaltrans conf - BoAML

Whats happening on the negotiation table:
1. Sentiment generally bearish, but price realization ironically bullish...
* Many buyers found US$115/t good value for money (not far from current spot of US$118/t). This is in line with our last note dated 13 May...
* We found out one big Indo coal players sold 2mn t of 5300kcal NAR high sulfur coal (2%) at US$104/t - surprise surprise no discount to current spot NEWC on an index basis.
* One week before the conference, 4400kcal NAR coal could be sold to China at US$82/t, but during the conf, it seems it could be priced a couple of dollars higher....

2. Chinese the key highlight in the negotiation table; More Chinese players looking for lower rank coal.
* Chinese can now take up to 3500-4000kcal NAR coal....compared that with its strict demand of 5000-5500kcal NAR coal 3 years ago...
* Price expectation is pretty good: for 4200kcal coal, they are willing to pay NEW minus 25-30%...For 3500kcal, NEWC minus 40-50%.

3. India surprisingly less aggressive...
* Perhaps its monsoon and they were downplaying on demand..
* India is watching for API2/4 price closely and it seems there is a lot of leverage to S. African coal.
* They might be able to do so because their import is 60mn t; it will be a different story when their import jump to 90mn t next year...

4. Not much low CV coal available now...
* There is not much coal left available for spot sales coming from Indonesia, especially the low CV coal.
* They use the low CV coal for mostly blending with higher CV coal.

5. Optimism for price to go higher in 4Q...
* General optimism from buyer/seller for price to go higher in 4Q.
* Key Driver: stronger demand from China, India buying, Korean spot tender, and additional demand from Japan in October.
* This is consistent with our view

There was one presentation on the regulation change, which we found exceptionally useful. We present the key takeaways...
1. Royalty could be hiked. No more deduction in cost (like barging, insurance, etc). Impact 5-9% to earnings. But interestingly, the regulation was there since 2009.
2. No more ROM stockpile sales/ blending sales. Not much impact to Indo coal company under our coverage, we believe. They buy and sell coal for blending using a separate trading entity, which operate under special IUP license.
3. Royalty for different types of sales.
4. There will be minimum pricing for coking coal.
5. Forestry moratorium for 2 year applied to peat land and primary forest; applicable to forest as well as non forest area...
6. There is draft regulation that mines produce less than 5000kcal GAD must produce greather than 5000kcal GAD coal by 12 January 2014...
7. Another draft. 20% divestment requirement after 5 years; otherwise offer price will trigger at 20% of historical investment cost...

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