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Tuesday, 08 December 09
VOLATILE COAL PRICES SPUR ASIAN HEDGING
 Volatile coal prices are forcing staid Asian power firms to change the way they buy fuel, setting the scene for a hedging boom as a growing array of investment banks come forward to aid the firms' first forays into coal derivatives.
A big prize awaits banks such as Goldman Sachs, Morgan Stanley and JPMorgan if they can grab a share of this business, since the utilities account for about 60% of total seaborne steam coal trade of around 600 million tonnes.
Their participation could double the Asian coal derivatives market to some 400 million tonnes over the next two years, trade sources say, although there are hurdles to overcome before Asia can match Europe, where derivatives volumes exceed physical trade by several multiples.
"We're starting to see a crack in the armour among the Japanese utilities this year and there's now hedging demand out of the sector," Geoff Clear, Head of Commodities Trading at Australia & New Zealand Bank, told Reuters.
"The coal derivatives market in Asia is in a good space and is ready to take off."
Although the first over-the-counter coal trading deals were introduced to Asia about eight years ago through globalCOAL, North Asian buyers prefer to sign long-term contracts to guarantee low prices and to secure premium quality coal.
But sharp volatility in prices, which swung between USD 50 and USD 200 a tonne last year, means this decades-old method is bringing increased risk to buyers, who can sometimes be paying far more than prevailing spot rates.
Experience has also taught utilities that purchasing coal at a fixed price does not guarantee supplies, as miners have delayed shipments when the index rises above contract prices.
"We see the market changing. Many utilities that employed very traditional ways of buying coal are now open to new hedging instruments," said Patrick Markey, Chief Operating Officer of globalCOAL Singapore, an electronic trading platform.
This year, Japanese utilities have bought about 20% of their annual coal needs, or about 26 million tonnes, through index-linked contracts and the proportion is expected to rise to around 30% in 2010, producers and traders said.
For the first time, Korea Western Power Co is also planning to buy between 10% and 20% of its annual coal requirements of 12 million tonnes through index-linked contracts next year, a utility source said.
As Asian utilities are increasingly accepting of contracts linked directly to the Newcastle price index, globalCOAL's NEWC swaps become an obvious risk-management tool to reduce most of the worry around volatility.
The size of the global coal derivatives market is hard to gauge, but brokers said it has been growing rapidly, to 1.3 billion tonnes in 2006 from an estimated 750 million tonnes in 2004.
Around 2 billion tonnes of coal derivatives are expected to be traded globally in 2009, of which the globalCOAL Newcastle market accounts for about 10%, up from just five percent two years ago -- reflecting the rapid growth potential of the Asian derivatives market.
"We are waiting for the big entrance of Japanese and Korean utilities into the swaps market," said Clear. "Some of them are still weighing up their choices, but there is now a marked change in their attitudes."
Recent participation of some Japanese trading houses in the paper market was also a sign that utilities are now open to having some risk products embedded into their traditional bilateral contracts, he added.
Some industry observers said the coal trading joint venture set up by Japan's Chubu Electric and French power provider EDF in 2007, called Chubu Energy Trading (CET), may have first paved the way for change.
While some traditional coal users were dipping their toes cautiously into the market, CET took big strides. In just two years, the unit was buying about half of Chubu's 10 million tonnes of annual coal needs through the spot market -- and managed to stay profitable in a period of wild coal price swings
Other utilities to recently step up hedging include Japan's No. 1 utility, J-Power, which has added a former Barclays commodity trader to its hedging team, and South Korea's East-West Power Co Ltd, which is looking to partner LG Corp to set up a coal trading unit.
Challenges ahead
Despite expected growth in the Asian coal trading market, trade sources say it will take some time before liquidity in the Pacific coal market catches up with its European counterpart, where the value of derivative trading exceeds the underlying market by many multiples.
"The innate conservatism of the Japanese utilities is a stumbling block," said a senior trader at an investment bank.
"The middle management is all for it. They understand how it can reduce fuel costs but have a hard time convincing their bosses, who still hold the view that hedging will introduce another risk to the equation."
A full-scale deregulation of the power markets is also needed to drive Asian utilities to search for the lowest-cost fuel.
Despite having undergone a partial deregulation, utilities in Japan and South Korea still enjoy a large degree of regional monopoly, while Taiwan's power market is still state-owned. With the freedom to pass on any fuel cost rises to users, there is no strong impetus to hedge costs.
"Many Japanese utilities are hedging now because they want a fixed price for their coal as opposed to getting the lowest price," said a trader at one of the top Japanese utilities.
Other hurdles to overcome include the establishment of a widely accepted Indonesian market index, traders and buyers said.
Although globalCOAL and Argus provide a weekly average price for different grades of Indonesian coal, market players say there are too few trades to get an accurate view of prices.
"Considering how Indonesia is the world's largest thermal coal exporter, there's definitely a need for the index to mature and to have some sort of a forward curve before utilities can use that as a hedging tool," said a trader at an investment bank.
Source: Money Control
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Saturday, 06 February 10
FREIGHT WOULD CONTINUE TO BE SOFT NEXT WEEK - VISTAAR SHIPPING
COALspot.com (Singapore): The freight market continued to soften this week including the stock markets. The main reason seems to be Chinese ne ...
Saturday, 06 February 10
COAL MINISTRY SEEKS CUT IN IMPORT DUTY
The coal ministry wants the finance ministry to reduce the 5.1% import duty on thermal coal and continue with the existing zero import duty on cokin ...
Friday, 05 February 10
IN 2010, CHINA COAL OUTPUT TO REACH AROUND 3.3BLN T
It is expected that China's coal production in 2010 will reach around 3.3bln tons. It is predicted that in the first quarter of 2010, the tight coa ...
Thursday, 04 February 10
INDIA REMAINS FIRM - FEARNRESEARCH
CHARTERING - DRY BULK
Handy
The BSI has continued it´s downward movement for 2 weeks now.Nevertheless activity in the atlantic remains bu ...
Thursday, 04 February 10
INFRASTRUCTURE DEVELOPMENT & INFRASTRUCTURE ASIA 2010
ASIA-PACIFIC MINISTERIAL CONFERENCE ON PUBLIC-PRIVATE PARTNERSHIPS FOR INFRASTRUCTURE DEVELOPMENT & INFRASTRUCTURE ASIA 2010
IPFA TO JOIN INF ...
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- Directorate Of Revenue Intelligence - India
- Interocean Group of Companies - India
- Bhoruka Overseas - Indonesia
- Siam City Cement - Thailand
- Karbindo Abesyapradhi - Indoneisa
- Medco Energi Mining Internasional
- Sindya Power Generating Company Private Ltd
- Global Coal Blending Company Limited - Australia
- Cigading International Bulk Terminal - Indonesia
- Parry Sugars Refinery, India
- Goldman Sachs - Singapore
- Madhucon Powers Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Lanco Infratech Ltd - India
- Kapuas Tunggal Persada - Indonesia
- Mintek Dendrill Indonesia
- Deloitte Consulting - India
- South Luzon Thermal Energy Corporation
- Power Finance Corporation Ltd., India
- Bukit Baiduri Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Binh Thuan Hamico - Vietnam
- Indian Energy Exchange, India
- Edison Trading Spa - Italy
- Altura Mining Limited, Indonesia
- Gujarat Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Vedanta Resources Plc - India
- Therma Luzon, Inc, Philippines
- CNBM International Corporation - China
- Commonwealth Bank - Australia
- Borneo Indobara - Indonesia
- The State Trading Corporation of India Ltd
- Gujarat Mineral Development Corp Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Rio Tinto Coal - Australia
- Parliament of New Zealand
- Sical Logistics Limited - India
- Independent Power Producers Association of India
- Semirara Mining Corp, Philippines
- Africa Commodities Group - South Africa
- Vijayanagar Sugar Pvt Ltd - India
- Sree Jayajothi Cements Limited - India
- Gujarat Sidhee Cement - India
- Ministry of Mines - Canada
- Singapore Mercantile Exchange
- Meenaskhi Energy Private Limited - India
- Tata Chemicals Ltd - India
- Kartika Selabumi Mining - Indonesia
- Trasteel International SA, Italy
- London Commodity Brokers - England
- Savvy Resources Ltd - HongKong
- Attock Cement Pakistan Limited
- SMG Consultants - Indonesia
- Romanian Commodities Exchange
- Baramulti Group, Indonesia
- Neyveli Lignite Corporation Ltd, - India
- SMC Global Power, Philippines
- Central Java Power - Indonesia
- Thiess Contractors Indonesia
- Intertek Mineral Services - Indonesia
- Cement Manufacturers Association - India
- White Energy Company Limited
- CIMB Investment Bank - Malaysia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Generating Authority of Thailand
- IEA Clean Coal Centre - UK
- Indian Oil Corporation Limited
- GAC Shipping (India) Pvt Ltd
- Jaiprakash Power Ventures ltd
- Heidelberg Cement - Germany
- Ceylon Electricity Board - Sri Lanka
- Bhushan Steel Limited - India
- Vizag Seaport Private Limited - India
- Bukit Makmur.PT - Indonesia
- Energy Development Corp, Philippines
- Posco Energy - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Economic Council, Georgia
- Maharashtra Electricity Regulatory Commission - India
- Latin American Coal - Colombia
- Videocon Industries ltd - India
- Barasentosa Lestari - Indonesia
- Iligan Light & Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- Energy Link Ltd, New Zealand
- Semirara Mining and Power Corporation, Philippines
- Riau Bara Harum - Indonesia
- TeaM Sual Corporation - Philippines
- Bangladesh Power Developement Board
- Xindia Steels Limited - India
- Bulk Trading Sa - Switzerland
- Offshore Bulk Terminal Pte Ltd, Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Grasim Industreis Ltd - India
- Petron Corporation, Philippines
- Kumho Petrochemical, South Korea
- Malabar Cements Ltd - India
- Coalindo Energy - Indonesia
- VISA Power Limited - India
- MS Steel International - UAE
- Sojitz Corporation - Japan
- Global Green Power PLC Corporation, Philippines
- Marubeni Corporation - India
- Salva Resources Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Siam City Cement PLC, Thailand
- Kaltim Prima Coal - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Ambuja Cements Ltd - India
- Alfred C Toepfer International GmbH - Germany
- San Jose City I Power Corp, Philippines
- European Bulk Services B.V. - Netherlands
- Coastal Gujarat Power Limited - India
- Global Business Power Corporation, Philippines
- Wood Mackenzie - Singapore
- Holcim Trading Pte Ltd - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Larsen & Toubro Limited - India
- Anglo American - United Kingdom
- Meralco Power Generation, Philippines
- Wilmar Investment Holdings
- Chamber of Mines of South Africa
- Formosa Plastics Group - Taiwan
- Bhatia International Limited - India
- Aboitiz Power Corporation - Philippines
- GMR Energy Limited - India
- Karaikal Port Pvt Ltd - India
- Renaissance Capital - South Africa
- Sakthi Sugars Limited - India
- OPG Power Generation Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Bahari Cakrawala Sebuku - Indonesia
- Central Electricity Authority - India
- Indika Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Banpu Public Company Limited - Thailand
- The Treasury - Australian Government
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Dalmia Cement Bharat India
- Uttam Galva Steels Limited - India
- Star Paper Mills Limited - India
- Price Waterhouse Coopers - Russia
- Merrill Lynch Commodities Europe
- Jindal Steel & Power Ltd - India
- PowerSource Philippines DevCo
- Samtan Co., Ltd - South Korea
- International Coal Ventures Pvt Ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Indo Tambangraya Megah - Indonesia
- Makarim & Taira - Indonesia
- Ind-Barath Power Infra Limited - India
- Maheswari Brothers Coal Limited - India
- Georgia Ports Authority, United States
- Minerals Council of Australia
- LBH Netherlands Bv - Netherlands
- ICICI Bank Limited - India
- Thai Mozambique Logistica
- GVK Power & Infra Limited - India
- Agrawal Coal Company - India
- TNB Fuel Sdn Bhd - Malaysia
- New Zealand Coal & Carbon
- Planning Commission, India
- Sarangani Energy Corporation, Philippines
- Orica Mining Services - Indonesia
- Eastern Coal Council - USA
- Antam Resourcindo - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Standard Chartered Bank - UAE
- Globalindo Alam Lestari - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Bayan Resources Tbk. - Indonesia
- Manunggal Multi Energi - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Australian Commodity Traders Exchange
- Mjunction Services Limited - India
- Tamil Nadu electricity Board
- PetroVietnam Power Coal Import and Supply Company
- PTC India Limited - India
- ASAPP Information Group - India
- Port Waratah Coal Services - Australia
- Essar Steel Hazira Ltd - India
- SN Aboitiz Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Coal and Oil Company - UAE
- Kobexindo Tractors - Indoneisa
- Timah Investasi Mineral - Indoneisa
- Eastern Energy - Thailand
- India Bulls Power Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Ministry of Transport, Egypt
- Carbofer General Trading SA - India
- Australian Coal Association
- McConnell Dowell - Australia
- Indogreen Group - Indonesia
- Kepco SPC Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Orica Australia Pty. Ltd.
- Ministry of Finance - Indonesia
- IHS Mccloskey Coal Group - USA
- Mercuria Energy - Indonesia
- Indonesian Coal Mining Association
- Aditya Birla Group - India
- Straits Asia Resources Limited - Singapore
- Bukit Asam (Persero) Tbk - Indonesia
- Chettinad Cement Corporation Ltd - India
- Toyota Tsusho Corporation, Japan
- Electricity Authority, New Zealand
- Bharathi Cement Corporation - India
- The University of Queensland
- Kideco Jaya Agung - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Mercator Lines Limited - India
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