Wednesday, December 9, 2009

Buffet effect?

I discussed about Coal Mines when we read the news that Warren Buffet is buying Burlington Northern at 27% premium.This co is engaged in the freight rail transportation business .I wrote at that time that Coal will become very dear commodity and international investors need to buy stocks of Coal Mines like Rio Tinto , BHP Biliton to name a few.
The effect seems to have started......


DEVJYOT GHOSHAL Kolkata, 7 December
After a sedate year, rising coal prices could hit the coffers of importbased domestic power generators in the next year. Spot prices for the fuel at Australia’s Newcastle port, a benchmark for Asia, have appreciated almost 10 per cent in November and rates at China’s Qinhuangdao port, a standard for the world’s largest coal consumer, have also seen a steady increase over the last two months.

Harried by the supply-demand mismatch in Indian coal production, anumber of private sector power companies have pegged their portbased projects on overseas coal, with aspecific dependence on the Indonesian variety. These include Reliance Power, which intends on using Krishnapatnam port, Essar Power, through Salaya port, and Tata Power as well as Adani Power, both of who will use Mundra Port.

“With Indian coal mining companies being unable to provide service to power producers such as NTPC, there is a huge dependence on the international market which is expected to increase as the volumes required are just not available in the country. Although long-term arrangements are being worked out, substantial amount of coal comes through the import route at present,” an analyst with InfralineEnergy Reseach and Information said.

However, with Indonesia’s thermal coal export growth likely to see amarked slowdown, importing the fuel will become more expensive for Indian firms.

Although Indonesian exports account for over 35 per cent of the global sea-borne coal market, the ability of Indonesian producers to ramp up production for sustaining export growth could be constrained by delay and regulatory uncertainties. Also, rising demand from Indonesian power producers and cautious capex programmes by major miners there, due to the global crisis, could see the prices of Indonesian coal rising in the coming months, according to a research by Citigroup.

Supply tightness is also expected to persist globally as export growth in both Australia and South Africa will be restricted due to port and rail infrastructure development. In the latter market, growing domestic demand, too, is likely to have an impact on thermal coal prices, an analysis by AME Mineral Economics suggested.

Moreover, thermal coal prices will also lent a degree of robustness as China, a study by Barclays Capital says, is likely to remain a major importer next year on the back of mine consolidation, expectation of a strong economic growth and possibility of higher taxes. In recent weeks, an increase in heating demand in China, triggered by the harshest winter in almost six decades, have spiked coal prices at Qinhuangdao port.

“Considering almost half of the coal requirement for the new coastal power projects is to be brought in from abroad, there will definitely be an impact on power companies. Although the cost of generation will increase, passing on the burden to the consumer will be tough and it will have to be absorbed by the generators themselves,” Angel Broking analyst Rupesh Sankhe said.

Although power companies have been allocated coal blocks for captive use, exploration and production from these might not happen immediately. Also, with many firms scouting for coal assets overseas, there is a dependence on spot purchases in the short-term.

“Larger players who have already secured assets abroad are unlikely to be affected and their consumers will not be hit if global coal prices rise. However, those firms who don’t have their own mines and are dependent on the market will have to bear the brunt,” Visa Group Chairman Vishambhar Saran said.

Although India has substantial non-coking coal reserves, in the range of 230 billion tonnes, there has been an increased reliance on imported coal. In 2007-08, the country imported about 28 million tonnes of non-coking coal as compared to 8.69 million tonnes in 2003-04. However, according to Citigroup estimates, India could have a combined import demand for thermal and coking coal to the tune of 140 million tonnes per year by 2013-14.

Spot prices for the fuel have appreciated almost 10% in November

Harried by the supply-demand mismatch in Indian coal production, a number of private sector power companies have pegged their portbased projects on overseas coal, with a specific dependence on the Indonesian variety


  1. Hello Rajeevbhai:

    I am adding your recommended script Intense Techno it is @Rs12
    They have tie up with Hitachi Data Techno and alloted stock to TOI group @Rs30.

    Any recommendation for stocks in US.


  2. hello rajeev bhai

    kpit blast today...


  3. Hi Rajeev

    Do you track Infomedia 18, If yes what's your outlook on this as this stock is in very interesting space it traded with highest volume since its listing on NSE.



  4. Amit,
    Infomedia 18 is old Tata Infomedia and old Tata Press.
    It is down because it is incurring losses but I like this co and think that this can be very good entry point.

  5. kpit cummins is on fire. it was on uppercircuit and later settled at some 10% gains.

  6. Thanks Rajeev,
    By best bet KPIT Cummins is on fire. All because of you motivation.

  7. Vikas,
    Even Venus is on fire.Results came out good.
    See , there is no calculation that works in stock market.
    If one would have sold Venus reading the news in ET which u pasted here, he must be repenting now.
    Same case with KPIT Cummins.There was a bulk deal showing Lehman br selling and if one sold seeeing that he must be repenting too....
    So in stock market it is never is never like....
    What you think something opposite happens....when I saw that bulk deal of KPIT of Lehman br, I also saw that KPIT workers fund bot all those shares and that was a big big positive.Hence KPIT instead of going down by selling , it went up today...

  8. Hi Rajeev

    Do you track V Guard Industries. management is buying very aggressively from open market. They bought as recently as Last week of Nov. Apart from transformer business and other electrical appliances they have 2 big water parks in Bangalore and Kochi.

    What's your call