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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, 23 January 10
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At the third Asian Min ...
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Friday, 22 January 10
SHENHUA ENERGY 09 YIELDED 210MN TONS COMMODITY COAL
China Shenhua Energy Co., Ltd. yielded 210 million tons of commodity coal in 2009, hiking 13.2% year on year, the Chinese energy titan announced tod ...
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- Electricity Authority, New Zealand
- Africa Commodities Group - South Africa
- Commonwealth Bank - Australia
- Neyveli Lignite Corporation Ltd, - India
- San Jose City I Power Corp, Philippines
- London Commodity Brokers - England
- VISA Power Limited - India
- Electricity Generating Authority of Thailand
- Cigading International Bulk Terminal - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- AsiaOL BioFuels Corp., Philippines
- Central Electricity Authority - India
- Deloitte Consulting - India
- Kumho Petrochemical, South Korea
- ASAPP Information Group - India
- Grasim Industreis Ltd - India
- Leighton Contractors Pty Ltd - Australia
- Semirara Mining and Power Corporation, Philippines
- Indian Energy Exchange, India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Antam Resourcindo - Indonesia
- Siam City Cement - Thailand
- The University of Queensland
- Edison Trading Spa - Italy
- LBH Netherlands Bv - Netherlands
- Bukit Asam (Persero) Tbk - Indonesia
- Mintek Dendrill Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Straits Asia Resources Limited - Singapore
- Oldendorff Carriers - Singapore
- Altura Mining Limited, Indonesia
- Manunggal Multi Energi - Indonesia
- Kartika Selabumi Mining - Indonesia
- Meenaskhi Energy Private Limited - India
- The Treasury - Australian Government
- Larsen & Toubro Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- PowerSource Philippines DevCo
- Madhucon Powers Ltd - India
- Cement Manufacturers Association - India
- Thiess Contractors Indonesia
- Asmin Koalindo Tuhup - Indonesia
- South Luzon Thermal Energy Corporation
- Tata Chemicals Ltd - India
- Aditya Birla Group - India
- Global Green Power PLC Corporation, Philippines
- Eastern Energy - Thailand
- India Bulls Power Limited - India
- Heidelberg Cement - Germany
- New Zealand Coal & Carbon
- Kaltim Prima Coal - Indonesia
- IEA Clean Coal Centre - UK
- OPG Power Generation Pvt Ltd - India
- Indika Energy - Indonesia
- Essar Steel Hazira Ltd - India
- CIMB Investment Bank - Malaysia
- Bulk Trading Sa - Switzerland
- Wilmar Investment Holdings
- Central Java Power - Indonesia
- SMG Consultants - Indonesia
- Georgia Ports Authority, United States
- Samtan Co., Ltd - South Korea
- Global Coal Blending Company Limited - Australia
- Mercuria Energy - Indonesia
- Eastern Coal Council - USA
- Kapuas Tunggal Persada - Indonesia
- McConnell Dowell - Australia
- Sinarmas Energy and Mining - Indonesia
- Medco Energi Mining Internasional
- GVK Power & Infra Limited - India
- Vizag Seaport Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Global Business Power Corporation, Philippines
- Energy Development Corp, Philippines
- Kobexindo Tractors - Indoneisa
- Romanian Commodities Exchange
- Bukit Makmur.PT - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Price Waterhouse Coopers - Russia
- Kohat Cement Company Ltd. - Pakistan
- Jorong Barutama Greston.PT - Indonesia
- Gujarat Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sarangani Energy Corporation, Philippines
- Meralco Power Generation, Philippines
- European Bulk Services B.V. - Netherlands
- Baramulti Group, Indonesia
- Posco Energy - South Korea
- Coastal Gujarat Power Limited - India
- Barasentosa Lestari - Indonesia
- Ministry of Mines - Canada
- Coalindo Energy - Indonesia
- Attock Cement Pakistan Limited
- Semirara Mining Corp, Philippines
- Sical Logistics Limited - India
- The State Trading Corporation of India Ltd
- Vijayanagar Sugar Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Alfred C Toepfer International GmbH - Germany
- Trasteel International SA, Italy
- Malabar Cements Ltd - India
- Sojitz Corporation - Japan
- Sindya Power Generating Company Private Ltd
- PTC India Limited - India
- Port Waratah Coal Services - Australia
- GMR Energy Limited - India
- Riau Bara Harum - Indonesia
- Bhoruka Overseas - Indonesia
- Rio Tinto Coal - Australia
- Merrill Lynch Commodities Europe
- Marubeni Corporation - India
- Ceylon Electricity Board - Sri Lanka
- Parry Sugars Refinery, India
- Bangladesh Power Developement Board
- Timah Investasi Mineral - Indoneisa
- Bukit Baiduri Energy - Indonesia
- Maheswari Brothers Coal Limited - India
- Bayan Resources Tbk. - Indonesia
- Economic Council, Georgia
- Power Finance Corporation Ltd., India
- Pipit Mutiara Jaya. PT, Indonesia
- Intertek Mineral Services - Indonesia
- Agrawal Coal Company - India
- CNBM International Corporation - China
- Ministry of Transport, Egypt
- Miang Besar Coal Terminal - Indonesia
- Iligan Light & Power Inc, Philippines
- Chamber of Mines of South Africa
- Minerals Council of Australia
- Gujarat Sidhee Cement - India
- Independent Power Producers Association of India
- Interocean Group of Companies - India
- Star Paper Mills Limited - India
- Tamil Nadu electricity Board
- Dalmia Cement Bharat India
- Standard Chartered Bank - UAE
- Directorate General of MIneral and Coal - Indonesia
- Formosa Plastics Group - Taiwan
- Indian Oil Corporation Limited
- Thai Mozambique Logistica
- Carbofer General Trading SA - India
- Renaissance Capital - South Africa
- Toyota Tsusho Corporation, Japan
- Pendopo Energi Batubara - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Coal and Oil Company - UAE
- Borneo Indobara - Indonesia
- Planning Commission, India
- Ambuja Cements Ltd - India
- Mercator Lines Limited - India
- Australian Commodity Traders Exchange
- Singapore Mercantile Exchange
- Sree Jayajothi Cements Limited - India
- Sakthi Sugars Limited - India
- IHS Mccloskey Coal Group - USA
- TeaM Sual Corporation - Philippines
- Savvy Resources Ltd - HongKong
- Latin American Coal - Colombia
- Orica Mining Services - Indonesia
- Therma Luzon, Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Anglo American - United Kingdom
- Kepco SPC Power Corporation, Philippines
- Siam City Cement PLC, Thailand
- Gujarat Mineral Development Corp Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Salva Resources Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Parliament of New Zealand
- Globalindo Alam Lestari - Indonesia
- Ministry of Finance - Indonesia
- Bhushan Steel Limited - India
- Indo Tambangraya Megah - Indonesia
- Jaiprakash Power Ventures ltd
- White Energy Company Limited
- Karaikal Port Pvt Ltd - India
- Makarim & Taira - Indonesia
- Jindal Steel & Power Ltd - India
- International Coal Ventures Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Binh Thuan Hamico - Vietnam
- Uttam Galva Steels Limited - India
- Krishnapatnam Port Company Ltd. - India
- Wood Mackenzie - Singapore
- Australian Coal Association
- Goldman Sachs - Singapore
- Indogreen Group - Indonesia
- Mjunction Services Limited - India
- Maharashtra Electricity Regulatory Commission - India
- GAC Shipping (India) Pvt Ltd
- Aboitiz Power Corporation - Philippines
- Petron Corporation, Philippines
- Banpu Public Company Limited - Thailand
- Energy Link Ltd, New Zealand
- Bhatia International Limited - India
- Lanco Infratech Ltd - India
- Metalloyd Limited - United Kingdom
- Vedanta Resources Plc - India
- SN Aboitiz Power Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Simpson Spence & Young - Indonesia
- Xindia Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Videocon Industries ltd - India
- Directorate Of Revenue Intelligence - India
- PetroVietnam Power Coal Import and Supply Company
- GN Power Mariveles Coal Plant, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Indonesian Coal Mining Association
- MS Steel International - UAE
- Bharathi Cement Corporation - India
- Bahari Cakrawala Sebuku - Indonesia
- Chettinad Cement Corporation Ltd - India
- PNOC Exploration Corporation - Philippines
- SMC Global Power, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
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