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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, 06 January 10
SAS 2009 COAL EXPORTS THROUGH RBCT FLAT AT 61MT
Exports through South Africa’s Richards Bay Coal Terminal (RBCT) remained flat in 2009, as the terminal faced “critical business challen ...
Wednesday, 06 January 10
BUMI SHARES UP AS OVERALL PERFORMANCE BEATS PREDICTIONS
The world’s largest thermal coal exporter PT Bumi Resources saw its shares jump 10 percent to Rp 2,675 ($29 US cents) on Tuesday after the com ...
Wednesday, 06 January 10
INDIA MAY HAVE BECOME TOP BUYER OF SOUTH AFRICAN COAL
India may have overtaken Europe for the first time as the biggest purchaser of South African coal in 2009, according to Raymond Chirwa, Richards Bay ...
Wednesday, 06 January 10
COAL PEAK RECEDES INTO THE FAR DISTANCE
COALspot.com (German): Coal will be available to mankind as an energy source for the next 120 years.
The German Coal Importer Association has ca ...
Tuesday, 05 January 10
SUPRAMAX MARKET REMAINED QUIET OVER THE LAST 10 DAYS BRS - DRY BULK
Despite a damp end to the year for bulk rates, shipping has weathered the storm far better than was initially expected in the wake of the financ ...
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- Xindia Steels Limited - India
- Indian Energy Exchange, India
- Global Business Power Corporation, Philippines
- Central Electricity Authority - India
- Merrill Lynch Commodities Europe
- Timah Investasi Mineral - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Thiess Contractors Indonesia
- Therma Luzon, Inc, Philippines
- MS Steel International - UAE
- Africa Commodities Group - South Africa
- Sojitz Corporation - Japan
- Indogreen Group - Indonesia
- Essar Steel Hazira Ltd - India
- Jindal Steel & Power Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Kobexindo Tractors - Indoneisa
- Asmin Koalindo Tuhup - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maheswari Brothers Coal Limited - India
- Renaissance Capital - South Africa
- Independent Power Producers Association of India
- Orica Mining Services - Indonesia
- Malabar Cements Ltd - India
- Posco Energy - South Korea
- Madhucon Powers Ltd - India
- SMC Global Power, Philippines
- Karaikal Port Pvt Ltd - India
- Kideco Jaya Agung - Indonesia
- Thai Mozambique Logistica
- The Treasury - Australian Government
- Economic Council, Georgia
- Savvy Resources Ltd - HongKong
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Deloitte Consulting - India
- Samtan Co., Ltd - South Korea
- Rio Tinto Coal - Australia
- Electricity Authority, New Zealand
- Directorate Of Revenue Intelligence - India
- Oldendorff Carriers - Singapore
- Tamil Nadu electricity Board
- Formosa Plastics Group - Taiwan
- VISA Power Limited - India
- Bhushan Steel Limited - India
- Salva Resources Pvt Ltd - India
- Wilmar Investment Holdings
- Aditya Birla Group - India
- Gujarat Mineral Development Corp Ltd - India
- New Zealand Coal & Carbon
- Kohat Cement Company Ltd. - Pakistan
- Larsen & Toubro Limited - India
- PNOC Exploration Corporation - Philippines
- AsiaOL BioFuels Corp., Philippines
- Coastal Gujarat Power Limited - India
- Anglo American - United Kingdom
- OPG Power Generation Pvt Ltd - India
- Eastern Coal Council - USA
- Energy Development Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Gujarat Sidhee Cement - India
- Kapuas Tunggal Persada - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sarangani Energy Corporation, Philippines
- Wood Mackenzie - Singapore
- Billiton Holdings Pty Ltd - Australia
- Ministry of Transport, Egypt
- Mercator Lines Limited - India
- Straits Asia Resources Limited - Singapore
- Vizag Seaport Private Limited - India
- Sree Jayajothi Cements Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- PowerSource Philippines DevCo
- CNBM International Corporation - China
- South Luzon Thermal Energy Corporation
- Trasteel International SA, Italy
- Krishnapatnam Port Company Ltd. - India
- Mjunction Services Limited - India
- Port Waratah Coal Services - Australia
- Sical Logistics Limited - India
- Borneo Indobara - Indonesia
- Georgia Ports Authority, United States
- PetroVietnam Power Coal Import and Supply Company
- Australian Commodity Traders Exchange
- Binh Thuan Hamico - Vietnam
- Bhoruka Overseas - Indonesia
- Semirara Mining Corp, Philippines
- Intertek Mineral Services - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Mercuria Energy - Indonesia
- The State Trading Corporation of India Ltd
- Kumho Petrochemical, South Korea
- Chettinad Cement Corporation Ltd - India
- Bangladesh Power Developement Board
- London Commodity Brokers - England
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sinarmas Energy and Mining - Indonesia
- Kaltim Prima Coal - Indonesia
- Alfred C Toepfer International GmbH - Germany
- India Bulls Power Limited - India
- San Jose City I Power Corp, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Singapore Mercantile Exchange
- Holcim Trading Pte Ltd - Singapore
- Marubeni Corporation - India
- Mintek Dendrill Indonesia
- Meralco Power Generation, Philippines
- Heidelberg Cement - Germany
- Power Finance Corporation Ltd., India
- Aboitiz Power Corporation - Philippines
- Altura Mining Limited, Indonesia
- Global Coal Blending Company Limited - Australia
- Lanco Infratech Ltd - India
- Indian Oil Corporation Limited
- CIMB Investment Bank - Malaysia
- Semirara Mining and Power Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Minerals Council of Australia
- GVK Power & Infra Limited - India
- Ministry of Mines - Canada
- Star Paper Mills Limited - India
- Simpson Spence & Young - Indonesia
- SMG Consultants - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bukit Baiduri Energy - Indonesia
- PTC India Limited - India
- Parry Sugars Refinery, India
- GMR Energy Limited - India
- Edison Trading Spa - Italy
- Tata Chemicals Ltd - India
- SN Aboitiz Power Inc, Philippines
- Antam Resourcindo - Indonesia
- Videocon Industries ltd - India
- Agrawal Coal Company - India
- Bahari Cakrawala Sebuku - Indonesia
- The University of Queensland
- Grasim Industreis Ltd - India
- Uttam Galva Steels Limited - India
- Bharathi Cement Corporation - India
- Indo Tambangraya Megah - Indonesia
- Coalindo Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Bukit Makmur.PT - Indonesia
- Medco Energi Mining Internasional
- Commonwealth Bank - Australia
- Chamber of Mines of South Africa
- Electricity Generating Authority of Thailand
- Riau Bara Harum - Indonesia
- Kartika Selabumi Mining - Indonesia
- Indika Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Siam City Cement - Thailand
- Attock Cement Pakistan Limited
- Baramulti Group, Indonesia
- Planning Commission, India
- White Energy Company Limited
- Standard Chartered Bank - UAE
- Meenaskhi Energy Private Limited - India
- Orica Australia Pty. Ltd.
- Ambuja Cements Ltd - India
- Dalmia Cement Bharat India
- Jaiprakash Power Ventures ltd
- Cement Manufacturers Association - India
- Parliament of New Zealand
- Bank of Tokyo Mitsubishi UFJ Ltd
- ASAPP Information Group - India
- Rashtriya Ispat Nigam Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- IEA Clean Coal Centre - UK
- Australian Coal Association
- Neyveli Lignite Corporation Ltd, - India
- International Coal Ventures Pvt Ltd - India
- Ministry of Finance - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- LBH Netherlands Bv - Netherlands
- Ind-Barath Power Infra Limited - India
- Kepco SPC Power Corporation, Philippines
- Toyota Tsusho Corporation, Japan
- Bhatia International Limited - India
- Bayan Resources Tbk. - Indonesia
- Energy Link Ltd, New Zealand
- European Bulk Services B.V. - Netherlands
- Eastern Energy - Thailand
- Sakthi Sugars Limited - India
- Makarim & Taira - Indonesia
- Petron Corporation, Philippines
- Romanian Commodities Exchange
- Vedanta Resources Plc - India
- Price Waterhouse Coopers - Russia
- IHS Mccloskey Coal Group - USA
- Metalloyd Limited - United Kingdom
- Indonesian Coal Mining Association
- Kalimantan Lumbung Energi - Indonesia
- Coal and Oil Company - UAE
- Cigading International Bulk Terminal - Indonesia
- Iligan Light & Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Latin American Coal - Colombia
- Barasentosa Lestari - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Banpu Public Company Limited - Thailand
- McConnell Dowell - Australia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- GAC Shipping (India) Pvt Ltd
- TeaM Sual Corporation - Philippines
- Sindya Power Generating Company Private Ltd
- Goldman Sachs - Singapore
- Interocean Group of Companies - India
- Global Green Power PLC Corporation, Philippines
- Central Java Power - Indonesia
- Gujarat Electricity Regulatory Commission - India
- ICICI Bank Limited - India
- Carbofer General Trading SA - India
- Miang Besar Coal Terminal - Indonesia
- Maharashtra Electricity Regulatory Commission - India
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