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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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Wednesday, 27 January 10
ASIA'S 2010 STEAM COAL IMPORTS TO REACH 460 MLN T
* China to import up to 100 mln T of steam coal in 2010
* China, India seen investing in southern Africa assets
Asian imports of steam coal will ...
Wednesday, 27 January 10
PEABODY ENERGY EYES 'RED HOT' ASIAN COAL DEMAND
US miner Peabody Energy has seen already-strong Asian markets become “red hot”, as demand for metallurgical and thermal coal strains sup ...
Wednesday, 27 January 10
KOLKOTTA BASED POWER UTILITY CESC LOOKING FOR 100,000 MT OF COAL FOR MAY & JUNE DELIVERY
COALspot.com (India): Kolkotta based power utility CESC, the flagship company of the diversified RPG group of India, has issued a closed tender to b ...
Tuesday, 26 January 10
FREIGHT COST ERODES INDIA CEMENTS NET
"Freight cost increased from an average of around 14% of sales in the previous quarters to around 20% in the third quarter"
The Decembe ...
Tuesday, 26 January 10
VITOL BUYS EXPORT SPACE AT COLOMBIA SANTA MARTA PORT
Global energy trader Vitol has signed a four-year deal to take export capacity at Colombia's 3 million tonnes a year Carbonsan port in Santa Marta, ...
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- PetroVietnam Power Coal Import and Supply Company
- Savvy Resources Ltd - HongKong
- The Treasury - Australian Government
- Antam Resourcindo - Indonesia
- Power Finance Corporation Ltd., India
- Tamil Nadu electricity Board
- Indo Tambangraya Megah - Indonesia
- MS Steel International - UAE
- Simpson Spence & Young - Indonesia
- Bukit Makmur.PT - Indonesia
- Georgia Ports Authority, United States
- Salva Resources Pvt Ltd - India
- Bulk Trading Sa - Switzerland
- Semirara Mining Corp, Philippines
- Attock Cement Pakistan Limited
- IEA Clean Coal Centre - UK
- Metalloyd Limited - United Kingdom
- Rashtriya Ispat Nigam Limited - India
- Cement Manufacturers Association - India
- Renaissance Capital - South Africa
- Thai Mozambique Logistica
- Semirara Mining and Power Corporation, Philippines
- Kepco SPC Power Corporation, Philippines
- Coal and Oil Company - UAE
- Sindya Power Generating Company Private Ltd
- Oldendorff Carriers - Singapore
- Straits Asia Resources Limited - Singapore
- Manunggal Multi Energi - Indonesia
- Posco Energy - South Korea
- Ministry of Mines - Canada
- Jindal Steel & Power Ltd - India
- SMC Global Power, Philippines
- Electricity Authority, New Zealand
- TeaM Sual Corporation - Philippines
- Africa Commodities Group - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Karbindo Abesyapradhi - Indoneisa
- Chettinad Cement Corporation Ltd - India
- India Bulls Power Limited - India
- Intertek Mineral Services - Indonesia
- Chamber of Mines of South Africa
- Wilmar Investment Holdings
- International Coal Ventures Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Kumho Petrochemical, South Korea
- Latin American Coal - Colombia
- Deloitte Consulting - India
- Xindia Steels Limited - India
- Thiess Contractors Indonesia
- Pendopo Energi Batubara - Indonesia
- Iligan Light & Power Inc, Philippines
- PNOC Exploration Corporation - Philippines
- Aditya Birla Group - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Grasim Industreis Ltd - India
- Global Business Power Corporation, Philippines
- The University of Queensland
- Eastern Coal Council - USA
- Electricity Generating Authority of Thailand
- Billiton Holdings Pty Ltd - Australia
- Ministry of Transport, Egypt
- Mercuria Energy - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Banpu Public Company Limited - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sree Jayajothi Cements Limited - India
- Holcim Trading Pte Ltd - Singapore
- Parliament of New Zealand
- Vedanta Resources Plc - India
- Indian Energy Exchange, India
- Kobexindo Tractors - Indoneisa
- Maheswari Brothers Coal Limited - India
- Directorate Of Revenue Intelligence - India
- TNB Fuel Sdn Bhd - Malaysia
- Independent Power Producers Association of India
- Formosa Plastics Group - Taiwan
- Bhushan Steel Limited - India
- Krishnapatnam Port Company Ltd. - India
- Kartika Selabumi Mining - Indonesia
- Madhucon Powers Ltd - India
- Ambuja Cements Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Uttam Galva Steels Limited - India
- Binh Thuan Hamico - Vietnam
- Samtan Co., Ltd - South Korea
- Central Electricity Authority - India
- Global Coal Blending Company Limited - Australia
- Kalimantan Lumbung Energi - Indonesia
- McConnell Dowell - Australia
- Mjunction Services Limited - India
- Timah Investasi Mineral - Indoneisa
- Riau Bara Harum - Indonesia
- Gujarat Electricity Regulatory Commission - India
- London Commodity Brokers - England
- Bukit Baiduri Energy - Indonesia
- Sakthi Sugars Limited - India
- Price Waterhouse Coopers - Russia
- Tata Chemicals Ltd - India
- Interocean Group of Companies - India
- Coastal Gujarat Power Limited - India
- Gujarat Sidhee Cement - India
- Coalindo Energy - Indonesia
- Mercator Lines Limited - India
- Ind-Barath Power Infra Limited - India
- SN Aboitiz Power Inc, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- GMR Energy Limited - India
- LBH Netherlands Bv - Netherlands
- European Bulk Services B.V. - Netherlands
- Videocon Industries ltd - India
- Heidelberg Cement - Germany
- Goldman Sachs - Singapore
- Planning Commission, India
- Essar Steel Hazira Ltd - India
- Siam City Cement - Thailand
- Meralco Power Generation, Philippines
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- Sinarmas Energy and Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Anglo American - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- Leighton Contractors Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Indian Oil Corporation Limited
- Marubeni Corporation - India
- Jorong Barutama Greston.PT - Indonesia
- Lanco Infratech Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Star Paper Mills Limited - India
- Jaiprakash Power Ventures ltd
- Kohat Cement Company Ltd. - Pakistan
- Kaltim Prima Coal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- ASAPP Information Group - India
- Malabar Cements Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Global Green Power PLC Corporation, Philippines
- PTC India Limited - India
- VISA Power Limited - India
- Ministry of Finance - Indonesia
- Larsen & Toubro Limited - India
- Baramulti Group, Indonesia
- White Energy Company Limited
- Singapore Mercantile Exchange
- Commonwealth Bank - Australia
- Energy Link Ltd, New Zealand
- Energy Development Corp, Philippines
- Bharathi Cement Corporation - India
- Vijayanagar Sugar Pvt Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Makarim & Taira - Indonesia
- Petron Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Medco Energi Mining Internasional
- Indika Energy - Indonesia
- Minerals Council of Australia
- Sical Logistics Limited - India
- Altura Mining Limited, Indonesia
- Romanian Commodities Exchange
- Vizag Seaport Private Limited - India
- San Jose City I Power Corp, Philippines
- Borneo Indobara - Indonesia
- Aboitiz Power Corporation - Philippines
- Bhatia International Limited - India
- IHS Mccloskey Coal Group - USA
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Sojitz Corporation - Japan
- Karaikal Port Pvt Ltd - India
- Rio Tinto Coal - Australia
- CIMB Investment Bank - Malaysia
- PowerSource Philippines DevCo
- GAC Shipping (India) Pvt Ltd
- Asmin Koalindo Tuhup - Indonesia
- Toyota Tsusho Corporation, Japan
- Port Waratah Coal Services - Australia
- Bangladesh Power Developement Board
- Edison Trading Spa - Italy
- OPG Power Generation Pvt Ltd - India
- CNBM International Corporation - China
- Economic Council, Georgia
- Meenaskhi Energy Private Limited - India
- Australian Commodity Traders Exchange
- Orica Australia Pty. Ltd.
- Central Java Power - Indonesia
- Sarangani Energy Corporation, Philippines
- Indogreen Group - Indonesia
- Kideco Jaya Agung - Indonesia
- Globalindo Alam Lestari - Indonesia
- Dalmia Cement Bharat India
- Eastern Energy - Thailand
- Miang Besar Coal Terminal - Indonesia
- The State Trading Corporation of India Ltd
- Kapuas Tunggal Persada - Indonesia
- Parry Sugars Refinery, India
- South Luzon Thermal Energy Corporation
- Siam City Cement PLC, Thailand
- GVK Power & Infra Limited - India
- Agrawal Coal Company - India
- Carbofer General Trading SA - India
- Merrill Lynch Commodities Europe
- ICICI Bank Limited - India
- New Zealand Coal & Carbon
- Wood Mackenzie - Singapore
- Bayan Resources Tbk. - Indonesia
- Barasentosa Lestari - Indonesia
- AsiaOL BioFuels Corp., Philippines
- SMG Consultants - Indonesia
- Indonesian Coal Mining Association
- Australian Coal Association
- Mintek Dendrill Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Standard Chartered Bank - UAE
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