COAL There is no relief in sight for historically low coal prices, unless mines start cutting output. Coal price weakness is expected to extend into

Transcription

1 Volume: 104

2 OIL & COAL FORECAST CRUDE OIL Oil prices driven mainly by the rise in non- Organization of the Petroleum Exporting Countries (OPEC) supply growth, which is expected to outpace the growth in global oil demand. Geopolitical risks will continue to play an important role in determining global oil prices. Since mid-june 2014, the price of Brent crude oil has fallen by nearly 25 percent -- going from a high of $115 to about $87 a barrel -- and structural factors are causing concern among global oil producers. We believe that oil supplies will stay high as energy production in North America increases and OPEC countries remain hesitant or unable to cut production significantly. Moreover, in the short term, the Chinese economic slowdown and stagnant European economy will limit the potential for growth in oil demand. These factors could make it harder for global oil prices to rebound to their previous levels. The amount of oil production over the last four months is staggering. The United States has increased its production from 8.5 million barrels per day (bpd) in July to an estimated 9 million bpd. Libyan oil production has increased from about 200,000 bpd to more than 900,000 bpd. Saudi Arabia, Nigeria and Iraq have all increased production in recent months, and OPEC's production is at the highest level in two years. To put this into perspective, the International Energy Agency's projection for global oil demand growth for 2014 is only 700,000 bpd -- roughly half of the total production increase. Oil is the most geopolitically important commodity, and any structural change in oil markets will reverberate throughout the world, creating clear-cut winners and losers. Countries that consume large amounts of energy have been coping with oil prices above $100 per barrel since the beginning of 2011 as most of the developed world has been trying to emerge from financial and debt crises. A sustained period of lower oil prices could provide some relief to these countries. Major oil producers, on the other hand, have grown accustomed to high oil prices, often using them to underpin their national budgets. Sustained low oil prices will cause these oil producers to rethink their spending. Brent has averaged near $110 a barrel since 2011 but has fallen sharply since June as U.S. shale oil supplies outstripped expectations and Iraqi and Libyan production has risen despite violence and political unrest in the two OPEC members. Increasing supply from Iran, Libya and Iraq, as well as the United States should ensure that supplies are more than ample. And we hold Brent outlook at $90 a barrel for 2015.

3 COAL There is no relief in sight for historically low coal prices, unless mines start cutting output. Coal price weakness is expected to extend into 2015 on the back of a growing physical surplus next year. The balance is weaker on soft demand in China and continued strong mine ramp-ups around the world, forcing further production cuts in the US. A new 6% import tax on Australian supplies into China may further depress Newcastle prices. Until now, large miners have kept output at high levels despite a slump in demand. Major producers have mitigated the impact of falling prices by increasing production. Currently, at $64/mt Newcastle prices (a benchmark for the Asia-Pacific region) are not low enough to force production cuts in Australia, as the vast majority of production earns enough to cover variable cash costs as long as Newcastle prices stay above $55/mt, but we expect at some point in 2015 this would change. Prices for Australian thermal coal cargoes for delivery next month from the Newcastle export terminal,, have more than halved since 2011, hitting 5-year lows of $62 per ton at the end of October as rising output has been met by stalling demand. In Indonesia a lot of the producers have got a significant amount of debt so it's still today better for them to keep running and try to cut costs by increasing production rather than stopping outright but that might change at some point. Looking beyond 2015 a more balanced market can be seen with a small deficit in 2016 and that grows into a larger deficit in Hence the downside risk to seaborne thermal coal prices starts to dissipate in 2016, and forward prices are expected to rise at that point. We forecast for Newcastle coal prices to average $72/mt and $82 in 2016 and 2017, respectively. American producers have spare capacity after having slashed exports in the last three years in response to falling prices, and we believe that prices will have to rise in to lure them back to the seaborne market as the global balance tightens.

4 Factoring Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A Business will sometimes Factor its Receivable Assets to meet its present and immediate Cash needs. A factor is essentially a funding source that agrees to pay the company the value of the invoice less a discount for commission and fees. The factor advances most of the invoiced amount to the company immediately and the balance upon receipt of funds from the invoiced party. Note that the factor is more concerned with the creditworthiness of the invoiced party rather than the company from which it has purchased the receivables. There are three parties directly involved: the factor who purchases the receivable, the one who sells the receivable, and the debtor who has a Financial Liability that requires him/her to make a payment to the owner of the invoice. The sale of the receivable transfers ownership of the receivable to the factor, indicating the factor obtains all of the rights associated with the receivables. Accordingly, the receivable becomes the factor's asset, and the factor obtains the right to receive the payments made by the debtor for the invoice amount, and is free to pledge or exchange the receivable asset without unreasonable constraints or restrictions. Usually, the account debtor is notified of the sale of the receivable, and the factor bills the debtor and makes all collections. It is an internationally accepted financing solution that allows you to convert your accounts receivables to cash thereby releasing the cash generation potential of your business. Forfaiting is a Factoring arrangement used in International Trade Finance by Exporters who wish to sell their receivables to a forfaiter. Although factoring is a relatively expensive form of financing, factors provide a valuable service to (a) companies that operate in industries where it takes a long time to convert receivables to cash, and (b) companies that are growing rapidly and need cash to take advantage of new business opportunities. Factoring is a type of 'off balance sheet financing.

5 The first Indian cotton cloth mill was establish in 1818 at Fort Gloaester near Kolkatta, albeit this mill was a failure. The second mill which was established by KGN Daber in 1854 is called the true foundation of modern cotton industry in India. Its name was Bombay spinning & weaving company, Bombay. Sensex Gold (10 gm) MCX Metal MCX Agri Crude Oil ($/barrel) Dollar/INR

6 About Investeurs Consulting Private Limited For a good business, finance is as crucial as vision, management and product. Intuitively then Business Finance plays a vital role in the business prosperity. We, at Investeurs Consulting Pvt. Ltd understand and appreciate the vitality of this discipline and the responsibility that comes with it. As Business Finance Consultants we realize that finance is an enabler that contributes significantly towards realizing your business goals. We bring to the table 20 years of vast and vivid exposure to different businesses, a profound understanding of business and financial dynamics and excellent relationship with banks/ financial institutions. Team Chronicle Akanksha Srivastava Nidhi Gogia Harpreet Kaur akanksha@investeurs.com nidhi@investeurs.com harpreet@investeurs.com Disclaimer: Investeurs Chronicles is prepared by Research & Analysis Team of Investeurs Consulting Private Limited to provide the recipient with relevant information pertaining to the world economy. The information contained in the document is based on the releases made by various newspaper & publications; hence, we are not responsible for any inaccuracies in the information provided.