Unique Mining Services Plc (UMS) imports coal from Indonesia for distribution to domestic industries, mainly in Bangkok and nearby provinces. An affiliate of Thoresen Thai Agencies (TTA), its primary customer base is in food and beverages, pulp and paper, and textiles. Coal imports are tailored to match the boiler engineering specifications of each client. To expand its customer base, UMS participates in coal procurement auctions held by cement and power generation companies. Vichai Chuensuksawadi, director and acting managing director of UMS, discusses the company’s strategy and outlook.
What is UMS’s business model?
UMS is a coal logistics company. In simple terms we source coal, transport it to Thailand (often on Thoresen vessels), unload it at one of our two ports in Samut Sakhon and Ayutthaya and, finally, classify and distribute the coal to our customers according to their needs. We basically provide an end-to-end service with international import and domestic distribution.
Where does UMS source its coal?
We source primarily from a network of eight reliable suppliers in Indonesia who fall into two categories _ they are either mine operators or traders such as Sojitz, Samsung and LG. We chose Indonesia because of abundant availability of coal, advantageous logistics costs and superior coal specifications. For example, the ash content of coal from Indonesia is lower than that of coal from South Africa, and Thai industries typically cannot burn very much ash.
So, while we are open to sourcing from other countries, we have to take coal cost and specifications into consideration.
What is the current capacity of UMS? Will you look to expand?
We have two classification facilities _ one in Ayutthaya and one in Samut Sakhon.
At each one we classify coal into the following sizes: 0-5 millimetres, 10-20mm and 20-50mm. Our cumulative record high capacity at both facilities is 6,500 tonnes a day. Normally we run at around 70% utilisation, so there is definitely room to grow. Currently, the Samut Sakhon facility is closed because of community [opposition] issues. This has been a challenge, but we have met the conditions required for environmental purposes and have full permission from authorities to transport coal from there. We expect to be able to begin full operations by August. In the meantime, we are in the process of looking for a backup site.
Who are UMS’s typical customers?
Our customers are typically Thai SMEs as well as power plants and cement companies. Generally whenever one classifies coal, 35-40% will be in the 0-5mm category _ and only major power plants and cement companies can use this because of how quickly it burns. The rest of the coal is distributed to SMEs in industries including textiles, pulp and paper, footwear or food and beverages.
What separates UMS from its competitors?
Supply security is a strong differentiator for us. Because we work with reliable suppliers and use vessels for transport instead of barges, we are able to bring in 55,000 tonnes twice a month consistently. Our customers never have to worry about supply.
We are also very process-driven _ something that can be attributed to TTA’s management oversight. For example, because of highly focused flood prevention measures, UMS’s Ayutthaya plant escaped inundation and reported no damage last year.
How does UMS view the demand for coal and other commodities in Thailand and the region?
Thailand has the lowest import volume of coal in Southeast Asia, a phenomenon I believe stems from the environmental disaster in Mae Moh with Egat’s first coal-fired power plant. It used lignite, a very low-grade coal, and the necessary environmental controls were not in place back then. Since then, coal hasn’t been a popular source of energy.
But today, we are seeing fuel prices skyrocket. Gas is fairly limited in Thailand and biofuel supplies are inconsistent. Nuclear has also become a less popular option. So in our view, there is little doubt that coal will grow in popularity as an increasingly reliable and efficient source of energy.
To ensure sustainable practices across the coal industry, the government has put in place stricter regulations and controls. We as operators, and more importantly as corporate citizens, likewise have a responsibility to carry out our business in an environmentally conscious way.
UMS’s revenue and net profits have been declining since 2008. Why is this?
There were several factors, but the main cause has been a downturn in the cement industry in 2010 and 2011. This resulted in excess inventory of coal which we now have to sell at a discount. This in turn, puts a lot of pressure on our margins. We expect this to continue until the end of our fiscal year in September 2012.
What are the biggest risks facing your business?
The risks for UMS are the same as for everyone in this industry. As a group, we have to reduce the environmental impact of our operations so that we can coexist with the communities in which we operate. This is a priority for UMS and we are focusing a great deal of attention on the matter.
How does being a part of TTA help UMS?
Several synergies come with being a part of TTA. We now use group companies for a number of functions that previously were sourced externally. Our broker is Thoresen Shipping & Logistics and we often utilise its vessels to transport coal from Indonesia. This kind of support helps UMS to focus purely on sourcing coal and distributing it in a speedy and efficient manner.
What impact will the Asean Economic Community have on UMS’s business?
We are looking at the AEC as a positive development because TTA is already a regional player. UMS has the potential to tap into this network and mimic our business model in other markets. For example, a TTA subsidiary has just received a coal trading licence in Vietnam. With many industrial estates being developed across Vietnam now, we expect there to be a significant number of light industries that will require coal.
Where do you see UMS five years from now?
Within five years, we will look to triple our volumes in Thailand. There are several other markets domestically that we are looking at expanding into, and with small and independent power producers continuing to grow, we expect the demand for coal will continue to increase.
The Executive Q&A series is presented by ShareInvestor, Asia’s leading financial internet media and technology company and the largest investor relations network in the region, with more than 400 listed clients. This interview was conducted by Pon Van Compernolle, the editor of www.thaicapitalist.com.
Originally published in the Bangkok Post 25th May 2012