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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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Friday, 15 January 10
GOVT BRINGS IN DOMESTIC COAL MARKET OBLIGATION
The Energy and Mineral Resources Ministry has issued a ministerial decree requiring producers of coal and other minerals to allocate a proportion ...
Friday, 15 January 10
ADARO INDONESIA STILL TOPS IN INDONESIAN COAL EXPORT RANKING
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Friday, 15 January 10
NTPC TO ADD 6,000 MW EACH YEAR IN 12TH PLAN
Will raise total generation capacity to 75,000 Mw by 2017, up from 30,644 Mw at present.
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Friday, 15 January 10
POSCO SAYS 2010 COKING COAL AGREEMENT MAY BE DELAYED - BLOOMBERG
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Friday, 15 January 10
CHINA POWER FIRMS SEEK COAL IMPORTS, SUPPLY SCARCE
China's coal-hungry power plants have turned to imported coal to cope with widespread shortages, but spot supply is scarce, traders said on Thursda ...
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- Toyota Tsusho Corporation, Japan
- Coastal Gujarat Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Ceylon Electricity Board - Sri Lanka
- AsiaOL BioFuels Corp., Philippines
- Kohat Cement Company Ltd. - Pakistan
- Jorong Barutama Greston.PT - Indonesia
- OPG Power Generation Pvt Ltd - India
- Gujarat Sidhee Cement - India
- Holcim Trading Pte Ltd - Singapore
- Ministry of Transport, Egypt
- Petrochimia International Co. Ltd.- Taiwan
- Orica Australia Pty. Ltd.
- The University of Queensland
- Tamil Nadu electricity Board
- Bharathi Cement Corporation - India
- Trasteel International SA, Italy
- Singapore Mercantile Exchange
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Petron Corporation, Philippines
- Baramulti Group, Indonesia
- Timah Investasi Mineral - Indoneisa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Straits Asia Resources Limited - Singapore
- Sree Jayajothi Cements Limited - India
- Merrill Lynch Commodities Europe
- Semirara Mining Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Coalindo Energy - Indonesia
- Madhucon Powers Ltd - India
- Coal and Oil Company - UAE
- Savvy Resources Ltd - HongKong
- Deloitte Consulting - India
- Kobexindo Tractors - Indoneisa
- SN Aboitiz Power Inc, Philippines
- MS Steel International - UAE
- India Bulls Power Limited - India
- Independent Power Producers Association of India
- Port Waratah Coal Services - Australia
- Interocean Group of Companies - India
- GVK Power & Infra Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Larsen & Toubro Limited - India
- Karaikal Port Pvt Ltd - India
- Mintek Dendrill Indonesia
- Australian Coal Association
- Edison Trading Spa - Italy
- Neyveli Lignite Corporation Ltd, - India
- Eastern Energy - Thailand
- Energy Development Corp, Philippines
- Attock Cement Pakistan Limited
- Mercator Lines Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Price Waterhouse Coopers - Russia
- London Commodity Brokers - England
- Chettinad Cement Corporation Ltd - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- GN Power Mariveles Coal Plant, Philippines
- Australian Commodity Traders Exchange
- Romanian Commodities Exchange
- Agrawal Coal Company - India
- Anglo American - United Kingdom
- Kartika Selabumi Mining - Indonesia
- Salva Resources Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ministry of Finance - Indonesia
- GAC Shipping (India) Pvt Ltd
- Africa Commodities Group - South Africa
- Intertek Mineral Services - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Economic Council, Georgia
- Kalimantan Lumbung Energi - Indonesia
- Manunggal Multi Energi - Indonesia
- McConnell Dowell - Australia
- Jindal Steel & Power Ltd - India
- Global Business Power Corporation, Philippines
- Tata Chemicals Ltd - India
- Mercuria Energy - Indonesia
- PowerSource Philippines DevCo
- San Jose City I Power Corp, Philippines
- Planning Commission, India
- South Luzon Thermal Energy Corporation
- Aboitiz Power Corporation - Philippines
- Sakthi Sugars Limited - India
- CIMB Investment Bank - Malaysia
- Maheswari Brothers Coal Limited - India
- Bhoruka Overseas - Indonesia
- Riau Bara Harum - Indonesia
- Bangladesh Power Developement Board
- Indian Energy Exchange, India
- Electricity Authority, New Zealand
- White Energy Company Limited
- LBH Netherlands Bv - Netherlands
- Commonwealth Bank - Australia
- Altura Mining Limited, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bulk Trading Sa - Switzerland
- SMC Global Power, Philippines
- Posco Energy - South Korea
- Aditya Birla Group - India
- Indika Energy - Indonesia
- Siam City Cement PLC, Thailand
- Kapuas Tunggal Persada - Indonesia
- Central Electricity Authority - India
- Semirara Mining and Power Corporation, Philippines
- Goldman Sachs - Singapore
- Alfred C Toepfer International GmbH - Germany
- CNBM International Corporation - China
- VISA Power Limited - India
- Thiess Contractors Indonesia
- Pendopo Energi Batubara - Indonesia
- Videocon Industries ltd - India
- Xindia Steels Limited - India
- IEA Clean Coal Centre - UK
- GMR Energy Limited - India
- Leighton Contractors Pty Ltd - Australia
- Formosa Plastics Group - Taiwan
- Thai Mozambique Logistica
- Malabar Cements Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Antam Resourcindo - Indonesia
- Makarim & Taira - Indonesia
- Meralco Power Generation, Philippines
- Ambuja Cements Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Parliament of New Zealand
- New Zealand Coal & Carbon
- Ministry of Mines - Canada
- Billiton Holdings Pty Ltd - Australia
- Dalmia Cement Bharat India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Lanco Infratech Ltd - India
- Bayan Resources Tbk. - Indonesia
- Grasim Industreis Ltd - India
- Kepco SPC Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Binh Thuan Hamico - Vietnam
- Uttam Galva Steels Limited - India
- Minerals Council of Australia
- Vijayanagar Sugar Pvt Ltd - India
- Chamber of Mines of South Africa
- Global Green Power PLC Corporation, Philippines
- ICICI Bank Limited - India
- Globalindo Alam Lestari - Indonesia
- Vedanta Resources Plc - India
- Eastern Coal Council - USA
- Parry Sugars Refinery, India
- Global Coal Blending Company Limited - Australia
- Cement Manufacturers Association - India
- Banpu Public Company Limited - Thailand
- Siam City Cement - Thailand
- Sojitz Corporation - Japan
- Carbofer General Trading SA - India
- Kaltim Prima Coal - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- PTC India Limited - India
- Kideco Jaya Agung - Indonesia
- Oldendorff Carriers - Singapore
- European Bulk Services B.V. - Netherlands
- Electricity Generating Authority of Thailand
- Renaissance Capital - South Africa
- Jaiprakash Power Ventures ltd
- Maharashtra Electricity Regulatory Commission - India
- The Treasury - Australian Government
- Bhatia International Limited - India
- Miang Besar Coal Terminal - Indonesia
- The State Trading Corporation of India Ltd
- Indian Oil Corporation Limited
- Sical Logistics Limited - India
- Orica Mining Services - Indonesia
- Central Java Power - Indonesia
- Wood Mackenzie - Singapore
- ASAPP Information Group - India
- IHS Mccloskey Coal Group - USA
- TeaM Sual Corporation - Philippines
- Marubeni Corporation - India
- Karbindo Abesyapradhi - Indoneisa
- Star Paper Mills Limited - India
- Bhushan Steel Limited - India
- Georgia Ports Authority, United States
- Mjunction Services Limited - India
- Metalloyd Limited - United Kingdom
- Simpson Spence & Young - Indonesia
- SMG Consultants - Indonesia
- Sinarmas Energy and Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Borneo Indobara - Indonesia
- Essar Steel Hazira Ltd - India
- Pipit Mutiara Jaya. PT, Indonesia
- Iligan Light & Power Inc, Philippines
- Rio Tinto Coal - Australia
- Indogreen Group - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Gujarat Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- Latin American Coal - Colombia
- Sarangani Energy Corporation, Philippines
- Meenaskhi Energy Private Limited - India
- Indonesian Coal Mining Association
- Ind-Barath Power Infra Limited - India
- Bukit Makmur.PT - Indonesia
- Heidelberg Cement - Germany
- Wilmar Investment Holdings
- Samtan Co., Ltd - South Korea
- PNOC Exploration Corporation - Philippines
- Power Finance Corporation Ltd., India
- Vizag Seaport Private Limited - India
- Kumho Petrochemical, South Korea
- Directorate Of Revenue Intelligence - India
- Energy Link Ltd, New Zealand
- Standard Chartered Bank - UAE
- Indo Tambangraya Megah - Indonesia
- Medco Energi Mining Internasional
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