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'China may be a threat to Indian acquisitions'

Last updated on: November 23, 2010 15:40 IST

'China may be a threat to Indian acquisitions'

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Sudheer Pal Singh

India's growing hunger for coal to fuel its power plants is having a major impact on global coal demand and price movements.

James O'Connell, managing editor of Platts, the leading global provider of energy and metals information, said that in such a scenario India needs to keep a close watch on coal-fired capacity addition by China.

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Image: James OConnell, managing editor, Platts

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'China may be a threat to Indian acquisitions'

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In the past two years, China has become a net coal importer from a net exporter. How big a concern should it be for India, given the rising domestic coal demand.

China has the ability to swing from a net buyer to a net seller. India should remain aware of projections of what China's coal-fired power will be in the next 5-10 years.

Their forecasts against domestic production should also be looked at. In the short-term, Chinese imports are going to go through the roof. So it is going to be an interesting battle between the two nations over the next 3-5 years.

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'China may be a threat to Indian acquisitions'

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Does India have the capacity to match up to the high price indications that would result from this war?

If you have a power plant that needs coal and a large population to provide power to, the general populace is not going to be very happy.

So, you are going to have to match up to international prices. It is going to be more costly to let the plant become idle than actually burn the coal.

So, India is definitely going to be a competitor in the market. We have seen that Indian companies are smart buyers.

Indian buyers have a very good habit of what is called "picking the bottom of the market". When the prices go up, the Indians go to the sidelines and keep an eye on what is going on. And when the prices drop, they get back in.

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'China may be a threat to Indian acquisitions'

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How do you rate the participation of Indian companies in the overseas coal market and acquisition of assets?

Private companies in India like Adani, Reliance, Tata and Essar will continue to rise in securing coal assets overseas.

But Chinese firms, too, will intensify overseas buyouts in the next 3 to 5 years, acting as a threat to Indian acquisitions.

In the last few years, Indian firms have intensified their hunt to buy out coal mines abroad. The realisation came late, but they have a vision.

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'China may be a threat to Indian acquisitions'

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What has been the impact of EU emission trading scheme for coal on global prices?

The cost to burn coal has gone up by at least 50 per cent in Europe. This has had an impact on how much coal is being burnt.

India is likely to learn from this experience. India will need an enormous amount of coal in the short to medium term. And if the cost goes up and the country does introduce an emissions trading scheme, it would be interesting to see whether the existing subsidies would increase or how it would absorb the increased cost.

But India is planning to set up more coal-based plants than nuclear or hydro plants.

Now Europe has access to large quantity of gas and if India, too, has that kind of access, we could see a similar trend in India.

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'China may be a threat to Indian acquisitions'

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What is your view on India overtaking Europe in coal usage?

Europe imports a major bulk of its gas from Indonesia and West Asia. In the next 3-5 years, we will definitely see an increase in coal-fired capacity burning in India.

And if there are more players in the market and the demand goes up then we are likely to see a situation where there is more competition for the available coal. I see India's coal usage exceeding that of Europe by the end of this year.

This assessment is based on the assessment of exports from the Richards Bay in South Africa. We select exports from Richards Bay because their statistics are highly reliable and it exports 67 million tonnes of coal annually.

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