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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, 07 January 10
RAMKY PLANS COAL MINING IN INDONESIA
Ramky Infrastructure Limited, a Hyderabad-based integrated infrastructure construction and development management company with strategic emphasis on ...
Thursday, 07 January 10
INDONESIAS COAL OUTPUT MAY RISE TO 309 MILLION TONS IN 2014 - BLOOMBERG
Indonesia’s coal production may rise to 309 million tons by 2014 from an estimated 250 million tons this year, Bambang Setiawan, director-gene ...
Wednesday, 06 January 10
RICHARDS BAY SAYS 46% OF COAL EXPORTS WENT TO EUROPE
Richards Bay Coal Terminal, through which almost all of South Africa’s coal exports are routed, said 46 percent of the coal it exported in 200 ...
Wednesday, 06 January 10
CHINA-AUSTRALIA INVESTMENT TIES SEEN IMPROVING IN 2010
Australia and China showed a united front in a bid to improve investment ties as they signed a $3-billion coal deal on Wednesday, following a rocky ...
Wednesday, 06 January 10
INVESTMENT IN MINING TO TOP $2.5B IN 2010
The government plans to invest US$2.5 billion in the mining sector, an official said Tuesday.
Bambang Setiawan, the director general of mineral r ...
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- Savvy Resources Ltd - HongKong
- GMR Energy Limited - India
- Ministry of Finance - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Carbofer General Trading SA - India
- Anglo American - United Kingdom
- CIMB Investment Bank - Malaysia
- IEA Clean Coal Centre - UK
- Globalindo Alam Lestari - Indonesia
- Jaiprakash Power Ventures ltd
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bahari Cakrawala Sebuku - Indonesia
- Uttam Galva Steels Limited - India
- Electricity Generating Authority of Thailand
- Kideco Jaya Agung - Indonesia
- Karaikal Port Pvt Ltd - India
- Tata Chemicals Ltd - India
- Coal and Oil Company - UAE
- Bhushan Steel Limited - India
- Xindia Steels Limited - India
- PowerSource Philippines DevCo
- Semirara Mining and Power Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Eastern Energy - Thailand
- Holcim Trading Pte Ltd - Singapore
- The State Trading Corporation of India Ltd
- Mercator Lines Limited - India
- Kartika Selabumi Mining - Indonesia
- Thiess Contractors Indonesia
- Economic Council, Georgia
- Makarim & Taira - Indonesia
- Mercuria Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Petron Corporation, Philippines
- TeaM Sual Corporation - Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Altura Mining Limited, Indonesia
- Indika Energy - Indonesia
- Chamber of Mines of South Africa
- San Jose City I Power Corp, Philippines
- Bhoruka Overseas - Indonesia
- Heidelberg Cement - Germany
- Baramulti Group, Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Orica Australia Pty. Ltd.
- Essar Steel Hazira Ltd - India
- Borneo Indobara - Indonesia
- Commonwealth Bank - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Power Finance Corporation Ltd., India
- Neyveli Lignite Corporation Ltd, - India
- Parry Sugars Refinery, India
- PTC India Limited - India
- Malabar Cements Ltd - India
- Tamil Nadu electricity Board
- Mjunction Services Limited - India
- Kapuas Tunggal Persada - Indonesia
- Bukit Baiduri Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Siam City Cement PLC, Thailand
- Meralco Power Generation, Philippines
- The Treasury - Australian Government
- Sical Logistics Limited - India
- Timah Investasi Mineral - Indoneisa
- Bangladesh Power Developement Board
- Vizag Seaport Private Limited - India
- Orica Mining Services - Indonesia
- Directorate Of Revenue Intelligence - India
- Kepco SPC Power Corporation, Philippines
- Jindal Steel & Power Ltd - India
- Toyota Tsusho Corporation, Japan
- Eastern Coal Council - USA
- Merrill Lynch Commodities Europe
- Trasteel International SA, Italy
- Parliament of New Zealand
- Aboitiz Power Corporation - Philippines
- Romanian Commodities Exchange
- Global Business Power Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Global Coal Blending Company Limited - Australia
- Australian Coal Association
- Cement Manufacturers Association - India
- Aditya Birla Group - India
- Cigading International Bulk Terminal - Indonesia
- Binh Thuan Hamico - Vietnam
- Bulk Trading Sa - Switzerland
- Riau Bara Harum - Indonesia
- Mintek Dendrill Indonesia
- Madhucon Powers Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Central Java Power - Indonesia
- Minerals Council of Australia
- Iligan Light & Power Inc, Philippines
- Indogreen Group - Indonesia
- IHS Mccloskey Coal Group - USA
- PNOC Exploration Corporation - Philippines
- Singapore Mercantile Exchange
- Dalmia Cement Bharat India
- Alfred C Toepfer International GmbH - Germany
- GAC Shipping (India) Pvt Ltd
- Planning Commission, India
- Manunggal Multi Energi - Indonesia
- Energy Link Ltd, New Zealand
- Intertek Mineral Services - Indonesia
- Sakthi Sugars Limited - India
- European Bulk Services B.V. - Netherlands
- Krishnapatnam Port Company Ltd. - India
- Bharathi Cement Corporation - India
- The University of Queensland
- Gujarat Mineral Development Corp Ltd - India
- Barasentosa Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Medco Energi Mining Internasional
- Standard Chartered Bank - UAE
- MS Steel International - UAE
- ICICI Bank Limited - India
- Grasim Industreis Ltd - India
- LBH Netherlands Bv - Netherlands
- Indian Energy Exchange, India
- Banpu Public Company Limited - Thailand
- Energy Development Corp, Philippines
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Petrochimia International Co. Ltd.- Taiwan
- Bukit Makmur.PT - Indonesia
- Chettinad Cement Corporation Ltd - India
- London Commodity Brokers - England
- Sojitz Corporation - Japan
- Kobexindo Tractors - Indoneisa
- Larsen & Toubro Limited - India
- Vedanta Resources Plc - India
- Bukit Asam (Persero) Tbk - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Central Electricity Authority - India
- Therma Luzon, Inc, Philippines
- Semirara Mining Corp, Philippines
- Electricity Authority, New Zealand
- Price Waterhouse Coopers - Russia
- Edison Trading Spa - Italy
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- ASAPP Information Group - India
- Billiton Holdings Pty Ltd - Australia
- Indian Oil Corporation Limited
- Kaltim Prima Coal - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Goldman Sachs - Singapore
- Indo Tambangraya Megah - Indonesia
- Star Paper Mills Limited - India
- Interocean Group of Companies - India
- Ceylon Electricity Board - Sri Lanka
- Kalimantan Lumbung Energi - Indonesia
- Global Green Power PLC Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Gujarat Electricity Regulatory Commission - India
- CNBM International Corporation - China
- Coalindo Energy - Indonesia
- Videocon Industries ltd - India
- Asmin Koalindo Tuhup - Indonesia
- Meenaskhi Energy Private Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Salva Resources Pvt Ltd - India
- New Zealand Coal & Carbon
- Gujarat Sidhee Cement - India
- Lanco Infratech Ltd - India
- SMG Consultants - Indonesia
- Antam Resourcindo - Indonesia
- SMC Global Power, Philippines
- Wood Mackenzie - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Transport, Egypt
- Maheswari Brothers Coal Limited - India
- Indonesian Coal Mining Association
- Ind-Barath Power Infra Limited - India
- Formosa Plastics Group - Taiwan
- Leighton Contractors Pty Ltd - Australia
- Attock Cement Pakistan Limited
- Marubeni Corporation - India
- Deloitte Consulting - India
- White Energy Company Limited
- Georgia Ports Authority, United States
- Metalloyd Limited - United Kingdom
- PetroVietnam Power Coal Import and Supply Company
- Rashtriya Ispat Nigam Limited - India
- India Bulls Power Limited - India
- GVK Power & Infra Limited - India
- VISA Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Thai Mozambique Logistica
- Bhatia International Limited - India
- Australian Commodity Traders Exchange
- Sree Jayajothi Cements Limited - India
- Africa Commodities Group - South Africa
- Vijayanagar Sugar Pvt Ltd - India
- Rio Tinto Coal - Australia
- Sinarmas Energy and Mining - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Renaissance Capital - South Africa
- Ambuja Cements Ltd - India
- Oldendorff Carriers - Singapore
- Ministry of Mines - Canada
- Posco Energy - South Korea
- Sarangani Energy Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Port Waratah Coal Services - Australia
- McConnell Dowell - Australia
- Straits Asia Resources Limited - Singapore
- International Coal Ventures Pvt Ltd - India
- Wilmar Investment Holdings
- Independent Power Producers Association of India
- Sindya Power Generating Company Private Ltd
- South Luzon Thermal Energy Corporation
- SN Aboitiz Power Inc, Philippines
- Coastal Gujarat Power Limited - India
- Kumho Petrochemical, South Korea
- OPG Power Generation Pvt Ltd - India
- Siam City Cement - Thailand
- Latin American Coal - Colombia
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