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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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Thursday, 28 January 10
THE IRON ORE EXPORTS FROM INDIA TO CHINA ARE DOWN AND THE RATES DROPPED
HANDY
The BSI has continued its downward trend confirming the softening of the Atlantic since the previous week and reflecting a correction of the ...
Thursday, 28 January 10
COAL - VIETNAM / TRADE
Vietnam expects to turn into a coal importer within three years, spurred by an industrial boom and rising power consumption, a senior executive with ...
Thursday, 28 January 10
JAPAN STEELMAKERS OPPOSE QUARTERLY COAL CONTRACTS
Japanese steelmakers oppose miner BHP Billiton's attempt to switch to quarterly contracts from annual deals for supplying coal, as the change would ...
Thursday, 28 January 10
BHP MAY SELL 25% STAKE IN INDONESIAN COAL PROJECT
BHP Billiton Ltd. plans to sell only a 25 percent stake in a coal project in Indonesia as it wants to retain control of the asset, said Indra Dianna ...
Thursday, 28 January 10
TRANSNET ASPIRES TO 81MT/Y COAL EXPORT CAPACITY
South African State-owned rail transport enterprise Transnet wants to increase coal-line rail capacity to 81-million tons a year as part of its Quan ...
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- Metalloyd Limited - United Kingdom
- Bukit Baiduri Energy - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Wilmar Investment Holdings
- Billiton Holdings Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- India Bulls Power Limited - India
- Straits Asia Resources Limited - Singapore
- Timah Investasi Mineral - Indoneisa
- Kideco Jaya Agung - Indonesia
- Siam City Cement PLC, Thailand
- Malabar Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Kumho Petrochemical, South Korea
- ICICI Bank Limited - India
- The State Trading Corporation of India Ltd
- Sojitz Corporation - Japan
- Indonesian Coal Mining Association
- GAC Shipping (India) Pvt Ltd
- Sindya Power Generating Company Private Ltd
- ASAPP Information Group - India
- Bhoruka Overseas - Indonesia
- Directorate Of Revenue Intelligence - India
- European Bulk Services B.V. - Netherlands
- The University of Queensland
- Australian Coal Association
- Vizag Seaport Private Limited - India
- Bukit Makmur.PT - Indonesia
- Planning Commission, India
- Ceylon Electricity Board - Sri Lanka
- Toyota Tsusho Corporation, Japan
- Sakthi Sugars Limited - India
- Latin American Coal - Colombia
- Gujarat Sidhee Cement - India
- Merrill Lynch Commodities Europe
- Mercator Lines Limited - India
- Ind-Barath Power Infra Limited - India
- Dalmia Cement Bharat India
- Gujarat Mineral Development Corp Ltd - India
- Energy Link Ltd, New Zealand
- Standard Chartered Bank - UAE
- New Zealand Coal & Carbon
- Kobexindo Tractors - Indoneisa
- Cement Manufacturers Association - India
- Heidelberg Cement - Germany
- International Coal Ventures Pvt Ltd - India
- South Luzon Thermal Energy Corporation
- Essar Steel Hazira Ltd - India
- Anglo American - United Kingdom
- Orica Mining Services - Indonesia
- LBH Netherlands Bv - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- Coalindo Energy - Indonesia
- Central Java Power - Indonesia
- Deloitte Consulting - India
- Sarangani Energy Corporation, Philippines
- Mjunction Services Limited - India
- Minerals Council of Australia
- Tata Chemicals Ltd - India
- Xindia Steels Limited - India
- Aditya Birla Group - India
- Port Waratah Coal Services - Australia
- Electricity Generating Authority of Thailand
- Indika Energy - Indonesia
- Renaissance Capital - South Africa
- Kaltim Prima Coal - Indonesia
- IEA Clean Coal Centre - UK
- Gujarat Electricity Regulatory Commission - India
- Commonwealth Bank - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Eastern Energy - Thailand
- Asmin Koalindo Tuhup - Indonesia
- Pendopo Energi Batubara - Indonesia
- Coastal Gujarat Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Bulk Trading Sa - Switzerland
- Pipit Mutiara Jaya. PT, Indonesia
- Thai Mozambique Logistica
- Trasteel International SA, Italy
- Central Electricity Authority - India
- SMG Consultants - Indonesia
- Agrawal Coal Company - India
- Indogreen Group - Indonesia
- Therma Luzon, Inc, Philippines
- Energy Development Corp, Philippines
- Global Business Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Lanco Infratech Ltd - India
- Semirara Mining Corp, Philippines
- Interocean Group of Companies - India
- Global Coal Blending Company Limited - Australia
- Africa Commodities Group - South Africa
- McConnell Dowell - Australia
- Maharashtra Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Jindal Steel & Power Ltd - India
- Antam Resourcindo - Indonesia
- Petron Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Salva Resources Pvt Ltd - India
- Mintek Dendrill Indonesia
- Orica Australia Pty. Ltd.
- Romanian Commodities Exchange
- Leighton Contractors Pty Ltd - Australia
- TeaM Sual Corporation - Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- The Treasury - Australian Government
- Attock Cement Pakistan Limited
- Aboitiz Power Corporation - Philippines
- GN Power Mariveles Coal Plant, Philippines
- Bhatia International Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PNOC Exploration Corporation - Philippines
- White Energy Company Limited
- Kalimantan Lumbung Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Goldman Sachs - Singapore
- Australian Commodity Traders Exchange
- Makarim & Taira - Indonesia
- Grasim Industreis Ltd - India
- PTC India Limited - India
- Sical Logistics Limited - India
- AsiaOL BioFuels Corp., Philippines
- Bayan Resources Tbk. - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Cigading International Bulk Terminal - Indonesia
- Edison Trading Spa - Italy
- Kohat Cement Company Ltd. - Pakistan
- IHS Mccloskey Coal Group - USA
- Videocon Industries ltd - India
- Maheswari Brothers Coal Limited - India
- MS Steel International - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Madhucon Powers Ltd - India
- TNB Fuel Sdn Bhd - Malaysia
- Sree Jayajothi Cements Limited - India
- Altura Mining Limited, Indonesia
- Simpson Spence & Young - Indonesia
- Medco Energi Mining Internasional
- Vijayanagar Sugar Pvt Ltd - India
- SMC Global Power, Philippines
- Chamber of Mines of South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- Posco Energy - South Korea
- Barasentosa Lestari - Indonesia
- Eastern Coal Council - USA
- Parliament of New Zealand
- Ambuja Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Star Paper Mills Limited - India
- Uttam Galva Steels Limited - India
- GVK Power & Infra Limited - India
- Baramulti Group, Indonesia
- Intertek Mineral Services - Indonesia
- London Commodity Brokers - England
- Carbofer General Trading SA - India
- Semirara Mining and Power Corporation, Philippines
- GMR Energy Limited - India
- Vedanta Resources Plc - India
- Siam City Cement - Thailand
- Oldendorff Carriers - Singapore
- Kartika Selabumi Mining - Indonesia
- VISA Power Limited - India
- Ministry of Transport, Egypt
- SN Aboitiz Power Inc, Philippines
- Samtan Co., Ltd - South Korea
- Electricity Authority, New Zealand
- Economic Council, Georgia
- Marubeni Corporation - India
- Tamil Nadu electricity Board
- Karaikal Port Pvt Ltd - India
- Rio Tinto Coal - Australia
- Parry Sugars Refinery, India
- Bhushan Steel Limited - India
- Meenaskhi Energy Private Limited - India
- Coal and Oil Company - UAE
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Thiess Contractors Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Indian Oil Corporation Limited
- Global Green Power PLC Corporation, Philippines
- Bharathi Cement Corporation - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Bangladesh Power Developement Board
- Wood Mackenzie - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- PowerSource Philippines DevCo
- Formosa Plastics Group - Taiwan
- Bukit Asam (Persero) Tbk - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Price Waterhouse Coopers - Russia
- Jaiprakash Power Ventures ltd
- Meralco Power Generation, Philippines
- Ministry of Finance - Indonesia
- Indo Tambangraya Megah - Indonesia
- Larsen & Toubro Limited - India
- Iligan Light & Power Inc, Philippines
- Mercuria Energy - Indonesia
- Singapore Mercantile Exchange
- Banpu Public Company Limited - Thailand
- Ministry of Mines - Canada
- CNBM International Corporation - China
- CIMB Investment Bank - Malaysia
- Georgia Ports Authority, United States
- Kapuas Tunggal Persada - Indonesia
- Riau Bara Harum - Indonesia
- Borneo Indobara - Indonesia
- San Jose City I Power Corp, Philippines
- Independent Power Producers Association of India
- Miang Besar Coal Terminal - Indonesia
- Globalindo Alam Lestari - Indonesia
- Power Finance Corporation Ltd., India
- Indian Energy Exchange, India
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