NEW YORK, June 9 (Reuters) - U.S. power plants will burn less than 1 billion tons of coal in 2009 for the first time since 2002 as the recession and low natural gas prices cut demand, the government's top energy forecasting agency said on Tuesday.
Power plants will burn about 994 million short tons of coal in 2009, the Energy Information Administration said in its monthly outlook on Tuesday.
"A decline in overall electricity generation, combined with projected increases from natural gas, nuclear and renewable (hydroelectric and wind) generation sources, are projected to lead to a 4.6-percent decline in coal consumption in the electric power sector this year," the EIA said.
Source: Reuters
Kamis, 11 Juni 2009
Finchannel Short-Term Energy Outlook
Highlights CoalConsumption. A decline in overall electricity generation, combined with projected increases from natural gas, nuclear, and renewable (hydroelectric and wind) generation sources, are projected to lead to a 4.6-percent decline in coal consumption in the electric power sector this year. The projected electric power sector consumption of 994 million short tons (MMst) in 2009 is the first time since 2002 that annual consumption would be below the billion short ton level. An expected increase in total electricity generation of 1.5 percent in 2010 is expected to lead to a 1.7-percent increase in electric-power-sector coal consumption. Non-power-sector coal consumption, for both steam and coke production, is projected to decline by 33 percent in 2009, reflecting very weak industrial activity (U.S. Coal Consumption Growth Chart).
Production. Production is expected to fall by about 7 percent in 2009 in response to lower total domestic coal consumption, export declines, and high coal inventories. The April 2009 production estimate of 88.3 MMst is the lowest monthly coal production figure since May 2004. Conversely, the estimated March 2009 secondary coal inventories of 183.9 MMst is the highest in over 20 years (secondary inventories were 185.5 MMst in December 1987). Production is projected to increase slightly (0.6 percent) in 2010 as domestic consumption and exports increase with an improving economy (U.S. Annual Coal Production Chart).
Exports. Reductions in global coal demand are expected to reduce U.S. coal exports by about 16.5 million short tons, a 20-percent decrease, in 2009. The projected rebound in global economic activity is expected to increase global coal demand and lead to a 24-percent increase in exports in 2010.
Prices. Despite declines in electricity demand and lower fuel costs, the annual average delivered coal price is projected to increase to $2.16 per million Btu (MMBtu) in 2009 due to a pricing lag between mine-mouth and delivered coal prices caused by long-term coal contracts. Current delivered prices were set when contracts were entered into during a period of high prices for all fuels one year or more ago. Although record increases in spot prices (some well over 100 percent) for several types of coal contributed to the increase in the cost of coal, spot market purchases make up only a small portion of total coal consumed. The average delivered coal price is expected to decline to $1.98 per MMBtu in 2010, as expiring high-priced contracts are replaced.
Source: finchannel.com
The Star Palm oil stocks may stay flat
Petaling Jaya
Lower inventory in Indonesia and Malaysia could trigger rise in exports
Malaysia’s palm oil stocks are expected to remain flat or fall slightly to about 1.25 million tonnes in end-May buoyed by good exports, say analysts.
Based on preliminary estimates by independent surveyor Intertek, palm oil exports in May rose 1.7% to 1.21 million tonnes compared with the previous month.
Malaysia, the world’s second largest palm oil producer, exported 1.19 million tonnes of palm oil in April, said the surveyor.
Independent cargo surveyor Societe Generale de Surveillance also estimated palm oil exports rose 5.1% last month. It tracked a total of 1.23 million tonnes of palm oil in May.
An analyst at a local brokerage said there was also risk that some Indonesian palm oil producers might have shifted their output to Malaysian ports prior to Indonesia’s imposition of 3% crude palm oil export duty on June 1 that could distort the actual local palm oil stocks.
“Palm oil inventory can still fall slightly but the quantum will be determined by the volume of imports from Indonesia,” he added.
The lower inventory in Indonesia and Malaysia, which collectively command 85% of the world’s palm oil production, could be one of the reasons that could trigger an increase in local palm oil exports.
Local palm oil stocks fell to their lowest in almost two years in April at 1.29 million tonnes, down 27.8% from a year earlier and 5.4% month-on-month.
Analysts said the market was generally expecting higher exports in May, driven primarily by India and China.
On the other hand, a re-imposition of import duty on edible oils in India, which has yet to materialise, could also lead to lower palm oil exports from Malaysia.
Palm oil exports to China, one of Malaysia’s biggest buyers of the commodity, fell 13% to 14.39 million tonnes in the first five months this year, compared with the same period last year, according to Societe Generale.
“Even if inventory slides a bit more, I don’t think the market will react much since production is recovering both in Malaysia and Indonesia,” an analyst said.
“Besides, there is also higher than usual stockpile in India, which could slow purchases in the coming months,” he said.
Although it is hard to predict whether stocks would decline in May, inventory in the second half of the year is generally higher as palm trees enter a seasonal high production period.
According to market talk, the current month-on-month growth estimate for Malaysia’s palm oil production ranges from 5% to 10%.
Analysts said palm oil production should continue to recover and May’s production should fare better than the past few months.
The Malaysian Palm Oil Board is expected to release the palm oil inventory, production and export figures for end-May today.
Lower inventory in Indonesia and Malaysia could trigger rise in exports
Malaysia’s palm oil stocks are expected to remain flat or fall slightly to about 1.25 million tonnes in end-May buoyed by good exports, say analysts.
Based on preliminary estimates by independent surveyor Intertek, palm oil exports in May rose 1.7% to 1.21 million tonnes compared with the previous month.
Malaysia, the world’s second largest palm oil producer, exported 1.19 million tonnes of palm oil in April, said the surveyor.
Independent cargo surveyor Societe Generale de Surveillance also estimated palm oil exports rose 5.1% last month. It tracked a total of 1.23 million tonnes of palm oil in May.
An analyst at a local brokerage said there was also risk that some Indonesian palm oil producers might have shifted their output to Malaysian ports prior to Indonesia’s imposition of 3% crude palm oil export duty on June 1 that could distort the actual local palm oil stocks.
“Palm oil inventory can still fall slightly but the quantum will be determined by the volume of imports from Indonesia,” he added.
The lower inventory in Indonesia and Malaysia, which collectively command 85% of the world’s palm oil production, could be one of the reasons that could trigger an increase in local palm oil exports.
Local palm oil stocks fell to their lowest in almost two years in April at 1.29 million tonnes, down 27.8% from a year earlier and 5.4% month-on-month.
Analysts said the market was generally expecting higher exports in May, driven primarily by India and China.
On the other hand, a re-imposition of import duty on edible oils in India, which has yet to materialise, could also lead to lower palm oil exports from Malaysia.
Palm oil exports to China, one of Malaysia’s biggest buyers of the commodity, fell 13% to 14.39 million tonnes in the first five months this year, compared with the same period last year, according to Societe Generale.
“Even if inventory slides a bit more, I don’t think the market will react much since production is recovering both in Malaysia and Indonesia,” an analyst said.
“Besides, there is also higher than usual stockpile in India, which could slow purchases in the coming months,” he said.
Although it is hard to predict whether stocks would decline in May, inventory in the second half of the year is generally higher as palm trees enter a seasonal high production period.
According to market talk, the current month-on-month growth estimate for Malaysia’s palm oil production ranges from 5% to 10%.
Analysts said palm oil production should continue to recover and May’s production should fare better than the past few months.
The Malaysian Palm Oil Board is expected to release the palm oil inventory, production and export figures for end-May today.
Palmoil HQ Can South East Asian Palm Oil Stocks Retain Their Gloss?
Shares of Sime Darby, Wilmar and other Southeast Asian palm planters have rallied this year as crude palm oil prices have rebounded from lows hit in October.
Strong Chinese and Indian demand for oilseeds and edible oils and curtailed supply have driven the revival in CPO prices. But with valuations looking stretched — shares in the sector are up as much as 75 per cent this year — and future prices dependent on the vagaries of the weather, are investors on a slippery slope?
DIMINISHING WEATHER IMPACT
Yes, said UBS analyst Alain Lai, who has an “underweight”
rating on the sector.
A lack of supply from Indonesia and Malaysia, the world’s top two CPO producers, due to “tree stress” and lower soybean oil supply from Argentina, the largest producer of soybean oil, have aided prices of CPO, which is used widely as a cooking oil in Asia and also as a key ingredient in food processing.
Palm oil is a cheaper substitute for soybean oil and enjoys rising demand if the supply of the latter falls.
But Lai and some other analysts say these factors are expected to stabilise in the coming months as the soybean harvest is over and the current tree-stress cycle reaches its end.
“These factors will have a diminishing effect on edible oil prices in the coming months,” Lai said.
Unfavourable weather conditions this year have played a key role in pushing up the price of edible oils by reducing supply.
But there are mixed views on that continuing.
“The weather will be the key price-determining factor in the next few weeks and months,” said Merrill Lynch analyst Jeffrey Ng, who has underperform ratings on Malaysia’s Sime, the world’s largest listed palm oil firm, and its smaller rivals Kuala Lumpur Kepong and Asiatic.
Prices of CPO have almost doubled from RM1,300 per metric tonne in October but are still down more than 40 per cent from last year’s peak — a record RM4,486 in March 2008 — due to the global financial crisis.
Malaysian planters expect them to trade at around RM2,200 (US$629.8) a tonne in the second half. Benchmark CPO futures on the Malaysian derivatives exchange are now trading at around RM2,466 a tonne.
Malaysia, Indonesia and Singapore are the only markets in the world where stocks of palm plantation companies are traded.
They make up nearly a fifth of the Malaysian market’s US$234 billion capitalisation.
Shares of Malaysia’s IOI Corp have risen 31 per cent this year, while Sime has gained 34 per cent.
Singapore’s Wilmar has jumped 75 per cent and Indonesia’s Astra Agro Lestari is up 59 per cent.
Sime trades at 21.5 times 2009 earnings and Wilmar at 14.7 times. By comparison, the broader Malaysian market trades at about 13.4 times estimated earnings.
SUPPLY TO TIGHTEN?
But valuations are still lower compared with the price-earnings ratios that ranged between 25 and 82 times during the sector’s last boom in 2006.
“We are looking at palm oil stocks opportunistically, where in terms of valuations, they still present an upside,” said Raymond Tang, chief investment officer at CIMB-Principal, one of the largest money managers in Malaysia, overseeing US$5.5 billion.
RBS analyst Nirgunan Tiruchelvam, who has an “overweight”
stance on palm plantation stocks, also saw pressure on supply due to dry weather conditions aggravating “tree stress”, a condition that sharply reduces yields of palm trees after a bumper harvest.
“We expect a severe tightening of palm oil supply,” he said. — Reuters
Strong Chinese and Indian demand for oilseeds and edible oils and curtailed supply have driven the revival in CPO prices. But with valuations looking stretched — shares in the sector are up as much as 75 per cent this year — and future prices dependent on the vagaries of the weather, are investors on a slippery slope?
DIMINISHING WEATHER IMPACT
Yes, said UBS analyst Alain Lai, who has an “underweight”
rating on the sector.
A lack of supply from Indonesia and Malaysia, the world’s top two CPO producers, due to “tree stress” and lower soybean oil supply from Argentina, the largest producer of soybean oil, have aided prices of CPO, which is used widely as a cooking oil in Asia and also as a key ingredient in food processing.
Palm oil is a cheaper substitute for soybean oil and enjoys rising demand if the supply of the latter falls.
But Lai and some other analysts say these factors are expected to stabilise in the coming months as the soybean harvest is over and the current tree-stress cycle reaches its end.
“These factors will have a diminishing effect on edible oil prices in the coming months,” Lai said.
Unfavourable weather conditions this year have played a key role in pushing up the price of edible oils by reducing supply.
But there are mixed views on that continuing.
“The weather will be the key price-determining factor in the next few weeks and months,” said Merrill Lynch analyst Jeffrey Ng, who has underperform ratings on Malaysia’s Sime, the world’s largest listed palm oil firm, and its smaller rivals Kuala Lumpur Kepong and Asiatic.
Prices of CPO have almost doubled from RM1,300 per metric tonne in October but are still down more than 40 per cent from last year’s peak — a record RM4,486 in March 2008 — due to the global financial crisis.
Malaysian planters expect them to trade at around RM2,200 (US$629.8) a tonne in the second half. Benchmark CPO futures on the Malaysian derivatives exchange are now trading at around RM2,466 a tonne.
Malaysia, Indonesia and Singapore are the only markets in the world where stocks of palm plantation companies are traded.
They make up nearly a fifth of the Malaysian market’s US$234 billion capitalisation.
Shares of Malaysia’s IOI Corp have risen 31 per cent this year, while Sime has gained 34 per cent.
Singapore’s Wilmar has jumped 75 per cent and Indonesia’s Astra Agro Lestari is up 59 per cent.
Sime trades at 21.5 times 2009 earnings and Wilmar at 14.7 times. By comparison, the broader Malaysian market trades at about 13.4 times estimated earnings.
SUPPLY TO TIGHTEN?
But valuations are still lower compared with the price-earnings ratios that ranged between 25 and 82 times during the sector’s last boom in 2006.
“We are looking at palm oil stocks opportunistically, where in terms of valuations, they still present an upside,” said Raymond Tang, chief investment officer at CIMB-Principal, one of the largest money managers in Malaysia, overseeing US$5.5 billion.
RBS analyst Nirgunan Tiruchelvam, who has an “overweight”
stance on palm plantation stocks, also saw pressure on supply due to dry weather conditions aggravating “tree stress”, a condition that sharply reduces yields of palm trees after a bumper harvest.
“We expect a severe tightening of palm oil supply,” he said. — Reuters
KimEng GGRM: Attractively priced despite excise hike, BUY
Volume is still growing strongly
The cigarette industry continued to show very strong volume growth in 4M09. Total YTD production (measured by excise ribbon purchase) was up 8% YoY to 81 billion sticks from 75 billion sticks in 4M08. We see that two things cause the sharp increase. Firstly, it was caused by heavy purchase of excise ribbons by cigarette producers anticipating another hike in excise ahead of the election. Secondly, we also see that the ”election-wealth” has prompted increased spending on small-ticket consumer goods items such as cigarettes.
Hand-rolled cigarettes grew by 35%, almost double that of the machine-made cigarettes at 18%. This phenomenon shows that purchasing power has not fully recovered from weakness, and that some smokers switched to cheaper products. Hand-rolled cigarettes, borne lower excise, are sold at lower prices
Gudang Garam showed high growth of 21% and was leading in production. The company’s volume growth is more than double that of the industry, which registered an 8% growth. The strong volume growth positioned Gudang Garam ahead of HM Sampoerna. Its market share in April was 24%, ahead of HM Sampoerna at 20%. Gudang Garam showed extraordinarily high growth in both machine-made cigarettes (up 18% YoY) and hand-rolled segment (up 35% YoY).
Better ways of doing business
The company shows significant changes from its old way of doing business. The Board of Directors and Board of Commissioners now consist of only two Wonowidjojo family members, from more than five in the past 10 years. We see that Gudang Garam also hired senior marketing people, hence, the sales growth and revamped branding. This is shown in 139% YoY increase in selling expenses for marketing employee compensation to Rp12.9b in 1Q09. The company managed to curb other expenses (such as repairs & maintenance) to control costs. Total operating expenses in 1Q09 were up only by 9% YoY, below the 11% revenue growth.
Excise may increase 10% next year
Director general of customs and excise was quoted as saying that the government may increase cigarette excise by 10% next year to raise state revenue. The government will not raise excise/tax on cigarettes this year as agreed between the industry and the government. The above excise hike is expected to put pressure on sales growth and profit margins next year. Separately, lawmakers are still deliberating the bill on regional tax and tax funds, which if passed will impose new regional taxes of 10%-25% of selling prices. We are on the opinion that the regional taxes are not likely to materialise as cigarette producers will fight relentlessly against the double taxing.
Room for upside remains
Bearing in mind the potential 10% excise hike next year, we downgraded our forecast for next year. We believe that net profit will come in flat (-0.1% YoY). Gudang Garam has the largest asset size compared to its peers. Its balance sheet and cash flow are healthy. Its ROE is attractive at 19%. The stock has seen significantly increasing liquidity and appetite since our report dated April 2009. We reiterate BUY with new target price at Rp13,000 (translates into 9.3x 2010F PER and 1.15x 2010F PBV). At the current price the stock is trading at 8.2x 2010F PER.
The cigarette industry continued to show very strong volume growth in 4M09. Total YTD production (measured by excise ribbon purchase) was up 8% YoY to 81 billion sticks from 75 billion sticks in 4M08. We see that two things cause the sharp increase. Firstly, it was caused by heavy purchase of excise ribbons by cigarette producers anticipating another hike in excise ahead of the election. Secondly, we also see that the ”election-wealth” has prompted increased spending on small-ticket consumer goods items such as cigarettes.
Hand-rolled cigarettes grew by 35%, almost double that of the machine-made cigarettes at 18%. This phenomenon shows that purchasing power has not fully recovered from weakness, and that some smokers switched to cheaper products. Hand-rolled cigarettes, borne lower excise, are sold at lower prices
Gudang Garam showed high growth of 21% and was leading in production. The company’s volume growth is more than double that of the industry, which registered an 8% growth. The strong volume growth positioned Gudang Garam ahead of HM Sampoerna. Its market share in April was 24%, ahead of HM Sampoerna at 20%. Gudang Garam showed extraordinarily high growth in both machine-made cigarettes (up 18% YoY) and hand-rolled segment (up 35% YoY).
Better ways of doing business
The company shows significant changes from its old way of doing business. The Board of Directors and Board of Commissioners now consist of only two Wonowidjojo family members, from more than five in the past 10 years. We see that Gudang Garam also hired senior marketing people, hence, the sales growth and revamped branding. This is shown in 139% YoY increase in selling expenses for marketing employee compensation to Rp12.9b in 1Q09. The company managed to curb other expenses (such as repairs & maintenance) to control costs. Total operating expenses in 1Q09 were up only by 9% YoY, below the 11% revenue growth.
Excise may increase 10% next year
Director general of customs and excise was quoted as saying that the government may increase cigarette excise by 10% next year to raise state revenue. The government will not raise excise/tax on cigarettes this year as agreed between the industry and the government. The above excise hike is expected to put pressure on sales growth and profit margins next year. Separately, lawmakers are still deliberating the bill on regional tax and tax funds, which if passed will impose new regional taxes of 10%-25% of selling prices. We are on the opinion that the regional taxes are not likely to materialise as cigarette producers will fight relentlessly against the double taxing.
Room for upside remains
Bearing in mind the potential 10% excise hike next year, we downgraded our forecast for next year. We believe that net profit will come in flat (-0.1% YoY). Gudang Garam has the largest asset size compared to its peers. Its balance sheet and cash flow are healthy. Its ROE is attractive at 19%. The stock has seen significantly increasing liquidity and appetite since our report dated April 2009. We reiterate BUY with new target price at Rp13,000 (translates into 9.3x 2010F PER and 1.15x 2010F PBV). At the current price the stock is trading at 8.2x 2010F PER.
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