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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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Monday, 18 January 10
BHP TO SPEND $267 MILLION ON QUEENSLAND COKING COAL
BHP Billiton Ltd, the world’s largest mining company, will spend $267 million to accelerate development of the Caval Ridge mine and the Hay Po ...
Sunday, 17 January 10
THE FUTURES FOR THREE YEARS (2010 - 2012) FIRMED UP - VISTAAR SINGAPORE
COALspot.com (Singapore): The freight market was a bit mixed with BDI up by about 159 points and closed at 3,299 points.
BDI
The cape index cont ...
Sunday, 17 January 10
NTPC TO DOUBLE CAPACITY BY 2017
NTPC, which will launch its follow-on public offer on February 3, plans to more than double its generating capacity to over 70,000 mega watts by 201 ...
Saturday, 16 January 10
HANDY CONTINUED FIRM CONDITIONS FOR MARKET IN THE ATLANTIC
HANDY
Continued firm conditions for the Handymax / Smax market in the Atlantic with the BSI having a continued upwards momentum. US$ 45,000 ac ...
Friday, 15 January 10
INDONESIA COAL - HEAVY RAINS HAVE LITTLE IMPACT ON COAL OUTPUT
Coal shipments from Indonesia's main coal-producing area are unlikely to be hit by heavy rains during January-February as many miners are prepared ...
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- Directorate Of Revenue Intelligence - India
- Salva Resources Pvt Ltd - India
- Savvy Resources Ltd - HongKong
- Australian Commodity Traders Exchange
- Renaissance Capital - South Africa
- Mercator Lines Limited - India
- Uttam Galva Steels Limited - India
- Agrawal Coal Company - India
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Banpu Public Company Limited - Thailand
- AsiaOL BioFuels Corp., Philippines
- Mintek Dendrill Indonesia
- Cigading International Bulk Terminal - Indonesia
- Attock Cement Pakistan Limited
- Power Finance Corporation Ltd., India
- IEA Clean Coal Centre - UK
- Indian Energy Exchange, India
- Electricity Generating Authority of Thailand
- Baramulti Group, Indonesia
- Coalindo Energy - Indonesia
- Standard Chartered Bank - UAE
- Rio Tinto Coal - Australia
- SN Aboitiz Power Inc, Philippines
- Siam City Cement - Thailand
- Sakthi Sugars Limited - India
- Formosa Plastics Group - Taiwan
- Energy Link Ltd, New Zealand
- Marubeni Corporation - India
- CIMB Investment Bank - Malaysia
- Kobexindo Tractors - Indoneisa
- White Energy Company Limited
- Bulk Trading Sa - Switzerland
- Sarangani Energy Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Essar Steel Hazira Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Wilmar Investment Holdings
- Bukit Baiduri Energy - Indonesia
- Madhucon Powers Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Coal and Oil Company - UAE
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- Wood Mackenzie - Singapore
- Trasteel International SA, Italy
- Maharashtra Electricity Regulatory Commission - India
- Carbofer General Trading SA - India
- SMC Global Power, Philippines
- Africa Commodities Group - South Africa
- Orica Australia Pty. Ltd.
- Lanco Infratech Ltd - India
- Jindal Steel & Power Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Singapore Mercantile Exchange
- Energy Development Corp, Philippines
- GN Power Mariveles Coal Plant, Philippines
- VISA Power Limited - India
- Kapuas Tunggal Persada - Indonesia
- Thai Mozambique Logistica
- Pendopo Energi Batubara - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Gujarat Sidhee Cement - India
- Xindia Steels Limited - India
- Indika Energy - Indonesia
- The University of Queensland
- IHS Mccloskey Coal Group - USA
- Bayan Resources Tbk. - Indonesia
- OPG Power Generation Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Interocean Group of Companies - India
- Bangladesh Power Developement Board
- Eastern Energy - Thailand
- Aditya Birla Group - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Therma Luzon, Inc, Philippines
- Vedanta Resources Plc - India
- Holcim Trading Pte Ltd - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Chamber of Mines of South Africa
- Tata Chemicals Ltd - India
- Heidelberg Cement - Germany
- Vijayanagar Sugar Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Leighton Contractors Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- Parry Sugars Refinery, India
- Antam Resourcindo - Indonesia
- Sindya Power Generating Company Private Ltd
- Coastal Gujarat Power Limited - India
- Intertek Mineral Services - Indonesia
- Eastern Coal Council - USA
- Meralco Power Generation, Philippines
- LBH Netherlands Bv - Netherlands
- Ceylon Electricity Board - Sri Lanka
- Asmin Koalindo Tuhup - Indonesia
- Edison Trading Spa - Italy
- Billiton Holdings Pty Ltd - Australia
- Georgia Ports Authority, United States
- Ministry of Mines - Canada
- Oldendorff Carriers - Singapore
- Ambuja Cements Ltd - India
- Maheswari Brothers Coal Limited - India
- Kumho Petrochemical, South Korea
- Ministry of Transport, Egypt
- Bhushan Steel Limited - India
- Miang Besar Coal Terminal - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Goldman Sachs - Singapore
- Manunggal Multi Energi - Indonesia
- Mercuria Energy - Indonesia
- Ind-Barath Power Infra Limited - India
- Star Paper Mills Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Karaikal Port Pvt Ltd - India
- Australian Coal Association
- Economic Council, Georgia
- MS Steel International - UAE
- Meenaskhi Energy Private Limited - India
- Gujarat Mineral Development Corp Ltd - India
- The State Trading Corporation of India Ltd
- Aboitiz Power Corporation - Philippines
- Global Coal Blending Company Limited - Australia
- PowerSource Philippines DevCo
- New Zealand Coal & Carbon
- Dalmia Cement Bharat India
- Borneo Indobara - Indonesia
- Cement Manufacturers Association - India
- Alfred C Toepfer International GmbH - Germany
- Sical Logistics Limited - India
- Central Java Power - Indonesia
- Merrill Lynch Commodities Europe
- GVK Power & Infra Limited - India
- Riau Bara Harum - Indonesia
- Larsen & Toubro Limited - India
- International Coal Ventures Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Bhoruka Overseas - Indonesia
- TeaM Sual Corporation - Philippines
- McConnell Dowell - Australia
- Directorate General of MIneral and Coal - Indonesia
- India Bulls Power Limited - India
- Sojitz Corporation - Japan
- Timah Investasi Mineral - Indoneisa
- ASAPP Information Group - India
- CNBM International Corporation - China
- Indogreen Group - Indonesia
- Indonesian Coal Mining Association
- Jaiprakash Power Ventures ltd
- Vizag Seaport Private Limited - India
- Kideco Jaya Agung - Indonesia
- Commonwealth Bank - Australia
- Simpson Spence & Young - Indonesia
- Romanian Commodities Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Independent Power Producers Association of India
- Semirara Mining Corp, Philippines
- Latin American Coal - Colombia
- The Treasury - Australian Government
- Kartika Selabumi Mining - Indonesia
- Anglo American - United Kingdom
- Samtan Co., Ltd - South Korea
- SMG Consultants - Indonesia
- Indo Tambangraya Megah - Indonesia
- Binh Thuan Hamico - Vietnam
- Chettinad Cement Corporation Ltd - India
- ICICI Bank Limited - India
- London Commodity Brokers - England
- San Jose City I Power Corp, Philippines
- Rashtriya Ispat Nigam Limited - India
- Sinarmas Energy and Mining - Indonesia
- Planning Commission, India
- Semirara Mining and Power Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Petrochimia International Co. Ltd.- Taiwan
- Tamil Nadu electricity Board
- Bahari Cakrawala Sebuku - Indonesia
- Metalloyd Limited - United Kingdom
- Grasim Industreis Ltd - India
- Sree Jayajothi Cements Limited - India
- European Bulk Services B.V. - Netherlands
- Malabar Cements Ltd - India
- Neyveli Lignite Corporation Ltd, - India
- GMR Energy Limited - India
- South Luzon Thermal Energy Corporation
- Medco Energi Mining Internasional
- Toyota Tsusho Corporation, Japan
- Makarim & Taira - Indonesia
- Thiess Contractors Indonesia
- Parliament of New Zealand
- Pipit Mutiara Jaya. PT, Indonesia
- Orica Mining Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Bukit Makmur.PT - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Minerals Council of Australia
- Posco Energy - South Korea
- Videocon Industries ltd - India
- Indian Oil Corporation Limited
- Global Business Power Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Kepco SPC Power Corporation, Philippines
- Electricity Authority, New Zealand
- Bhatia International Limited - India
- Petron Corporation, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- GAC Shipping (India) Pvt Ltd
- PTC India Limited - India
- Deloitte Consulting - India
- Iligan Light & Power Inc, Philippines
- Port Waratah Coal Services - Australia
- Global Green Power PLC Corporation, Philippines
- Central Electricity Authority - India
- Ministry of Finance - Indonesia
- Bharathi Cement Corporation - India
- Kaltim Prima Coal - Indonesia
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