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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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Sunday, 31 January 10
NTPC TO IMPORT COAL
NTPC Ltd plans to import coal directly, starting next fiscal.
“We plan to import 15-16 million tonnes of coal directly from next year,&rdqu ...
Saturday, 30 January 10
THE ECI / CHINA (S7) ROUTE SOFTENED BY $ 5,736 AND CLOSED AT $ 27,360 PER DAY - VISTAAR SHIPPING
COALspot.com (Singapore): The freight market continued to soften this week probably in anticipation of Chinese New year holidays.
BDI INDEX
...
Saturday, 30 January 10
INDONESIA TO CONSTRUCT 93 POWER PLANTS IN 2ND PROJECT
The government has announced its list of 93 power plants to be built under the second 10,000-megawatt (MW) power generation scheme.
"With th ...
Saturday, 30 January 10
COAL FIRMS TO KEEP NATION IN THE BLACK
Some Indonesian coal mining companies on Friday pledged to allocate a greater share of their production this year to meet domestic market obligation ...
Friday, 29 January 10
INDIA STEAM COAL IMPORTS TO DOUBLE, BOOST SOUTH AFRICA
* SAfrica seen shipping 75 pct of its coal to Asia in 2010
* Logistics woes hamper SAfrica exports, India imports
India's steam coal imports ar ...
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- Sindya Power Generating Company Private Ltd
- Salva Resources Pvt Ltd - India
- ICICI Bank Limited - India
- Indonesian Coal Mining Association
- Indian Energy Exchange, India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- GVK Power & Infra Limited - India
- Latin American Coal - Colombia
- Toyota Tsusho Corporation, Japan
- The Treasury - Australian Government
- SN Aboitiz Power Inc, Philippines
- Wood Mackenzie - Singapore
- Therma Luzon, Inc, Philippines
- Kumho Petrochemical, South Korea
- Makarim & Taira - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Sakthi Sugars Limited - India
- Coal and Oil Company - UAE
- Tamil Nadu electricity Board
- MS Steel International - UAE
- Oldendorff Carriers - Singapore
- Gujarat Electricity Regulatory Commission - India
- Africa Commodities Group - South Africa
- Iligan Light & Power Inc, Philippines
- Indika Energy - Indonesia
- Rio Tinto Coal - Australia
- Global Coal Blending Company Limited - Australia
- Bharathi Cement Corporation - India
- McConnell Dowell - Australia
- Wilmar Investment Holdings
- Sojitz Corporation - Japan
- White Energy Company Limited
- Kartika Selabumi Mining - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Jorong Barutama Greston.PT - Indonesia
- IEA Clean Coal Centre - UK
- Maharashtra Electricity Regulatory Commission - India
- New Zealand Coal & Carbon
- Minerals Council of Australia
- Banpu Public Company Limited - Thailand
- SMC Global Power, Philippines
- Leighton Contractors Pty Ltd - Australia
- Energy Development Corp, Philippines
- Globalindo Alam Lestari - Indonesia
- VISA Power Limited - India
- Semirara Mining Corp, Philippines
- Vizag Seaport Private Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Australian Coal Association
- Thiess Contractors Indonesia
- Directorate Of Revenue Intelligence - India
- Barasentosa Lestari - Indonesia
- Maheswari Brothers Coal Limited - India
- Romanian Commodities Exchange
- Billiton Holdings Pty Ltd - Australia
- Global Green Power PLC Corporation, Philippines
- Port Waratah Coal Services - Australia
- Tata Chemicals Ltd - India
- Cement Manufacturers Association - India
- Commonwealth Bank - Australia
- OPG Power Generation Pvt Ltd - India
- Heidelberg Cement - Germany
- Standard Chartered Bank - UAE
- The University of Queensland
- Cigading International Bulk Terminal - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Parliament of New Zealand
- Eastern Coal Council - USA
- Rashtriya Ispat Nigam Limited - India
- Planning Commission, India
- Independent Power Producers Association of India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Grasim Industreis Ltd - India
- Borneo Indobara - Indonesia
- Formosa Plastics Group - Taiwan
- Straits Asia Resources Limited - Singapore
- Uttam Galva Steels Limited - India
- Jaiprakash Power Ventures ltd
- Bangladesh Power Developement Board
- Parry Sugars Refinery, India
- ASAPP Information Group - India
- Bulk Trading Sa - Switzerland
- Posco Energy - South Korea
- Interocean Group of Companies - India
- Essar Steel Hazira Ltd - India
- Kobexindo Tractors - Indoneisa
- Indogreen Group - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- South Luzon Thermal Energy Corporation
- Intertek Mineral Services - Indonesia
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Gujarat Sidhee Cement - India
- Marubeni Corporation - India
- Trasteel International SA, Italy
- Jindal Steel & Power Ltd - India
- Thai Mozambique Logistica
- Mjunction Services Limited - India
- The State Trading Corporation of India Ltd
- Ambuja Cements Ltd - India
- Ministry of Transport, Egypt
- Kohat Cement Company Ltd. - Pakistan
- Kalimantan Lumbung Energi - Indonesia
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- SMG Consultants - Indonesia
- Price Waterhouse Coopers - Russia
- Antam Resourcindo - Indonesia
- Samtan Co., Ltd - South Korea
- Central Electricity Authority - India
- Australian Commodity Traders Exchange
- Bayan Resources Tbk. - Indonesia
- Aditya Birla Group - India
- Eastern Energy - Thailand
- Electricity Authority, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Ceylon Electricity Board - Sri Lanka
- CIMB Investment Bank - Malaysia
- Singapore Mercantile Exchange
- Bank of Tokyo Mitsubishi UFJ Ltd
- Asmin Koalindo Tuhup - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ind-Barath Power Infra Limited - India
- Mercuria Energy - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Indo Tambangraya Megah - Indonesia
- Lanco Infratech Ltd - India
- Chettinad Cement Corporation Ltd - India
- Carbofer General Trading SA - India
- San Jose City I Power Corp, Philippines
- Siam City Cement - Thailand
- Altura Mining Limited, Indonesia
- Meenaskhi Energy Private Limited - India
- Bhoruka Overseas - Indonesia
- Manunggal Multi Energi - Indonesia
- Baramulti Group, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Dalmia Cement Bharat India
- Attock Cement Pakistan Limited
- IHS Mccloskey Coal Group - USA
- LBH Netherlands Bv - Netherlands
- International Coal Ventures Pvt Ltd - India
- Siam City Cement PLC, Thailand
- TeaM Sual Corporation - Philippines
- Power Finance Corporation Ltd., India
- Bhushan Steel Limited - India
- Mintek Dendrill Indonesia
- Riau Bara Harum - Indonesia
- Coalindo Energy - Indonesia
- Timah Investasi Mineral - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Aboitiz Power Corporation - Philippines
- Larsen & Toubro Limited - India
- GAC Shipping (India) Pvt Ltd
- Malabar Cements Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- PTC India Limited - India
- Bukit Baiduri Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Central Java Power - Indonesia
- Ministry of Mines - Canada
- CNBM International Corporation - China
- PowerSource Philippines DevCo
- TNB Fuel Sdn Bhd - Malaysia
- Bukit Makmur.PT - Indonesia
- Ministry of Finance - Indonesia
- Madhucon Powers Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Anglo American - United Kingdom
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- Georgia Ports Authority, United States
- Edison Trading Spa - Italy
- Vedanta Resources Plc - India
- Miang Besar Coal Terminal - Indonesia
- Chamber of Mines of South Africa
- Deloitte Consulting - India
- Petron Corporation, Philippines
- Bhatia International Limited - India
- Holcim Trading Pte Ltd - Singapore
- Economic Council, Georgia
- Star Paper Mills Limited - India
- European Bulk Services B.V. - Netherlands
- Electricity Generating Authority of Thailand
- Sical Logistics Limited - India
- Coastal Gujarat Power Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Indian Oil Corporation Limited
- Energy Link Ltd, New Zealand
- PNOC Exploration Corporation - Philippines
- Orica Australia Pty. Ltd.
- Goldman Sachs - Singapore
- Binh Thuan Hamico - Vietnam
- London Commodity Brokers - England
- Merrill Lynch Commodities Europe
- Karaikal Port Pvt Ltd - India
- Videocon Industries ltd - India
- Semirara Mining and Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- India Bulls Power Limited - India
- Xindia Steels Limited - India
- Kideco Jaya Agung - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Agrawal Coal Company - India
- Alfred C Toepfer International GmbH - Germany
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Pendopo Energi Batubara - Indonesia
- Sree Jayajothi Cements Limited - India
- Kepco SPC Power Corporation, Philippines
- Mercator Lines Limited - India
- GMR Energy Limited - India
- Sarangani Energy Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- Metalloyd Limited - United Kingdom
- Orica Mining Services - Indonesia
- Meralco Power Generation, Philippines
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