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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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Tuesday, 05 January 10
WINTER WEATHER SPIKES COAL PRICES - CHINA UPDATE
Cold weather is driving coal prices higher and will lend the advantage in annual negotiations to suppliers, analysts said, predicting that the risin ...
Monday, 04 January 10
TOKYO ELECTRIC SEALS XSTRATA COAL DEAL
Tokyo Electric Power Co has agreed to pay about $US85 a tonne for Australian thermal coal in 2010 from miner Xstrata, a source familiar with the pri ...
Monday, 04 January 10
IND-BARATH TO SHIFT PROJECT FROM AP TO TN
Hyderabad-based power producer Ind–Barath is planning to set up a power plant at Tuticorin, Tamil Nadu. The proposed project would attract inv ...
Sunday, 03 January 10
NEWCASTLE THERMAL COAL PRICES FALL IN FIRST DECLINE IN 3 WEEKS
Power-station coal prices at Australia’s Newcastle port, a benchmark for Asia, declined 1.5 percent, falling for the first time in three weeks ...
Sunday, 03 January 10
NTPC SEEKS REPORT ON TRANSPORTING COAL THROUGH WATERWAYS
State-run National Thermal Power Corporation (NTPC), the country’s largest power utility, has asked for a “holistic” feasibility r ...
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- Binh Thuan Hamico - Vietnam
- Chamber of Mines of South Africa
- Indian Oil Corporation Limited
- Neyveli Lignite Corporation Ltd, - India
- OPG Power Generation Pvt Ltd - India
- PTC India Limited - India
- Malabar Cements Ltd - India
- Bangladesh Power Developement Board
- Pipit Mutiara Jaya. PT, Indonesia
- SMC Global Power, Philippines
- Dalmia Cement Bharat India
- Kohat Cement Company Ltd. - Pakistan
- Bahari Cakrawala Sebuku - Indonesia
- Baramulti Group, Indonesia
- The State Trading Corporation of India Ltd
- Electricity Generating Authority of Thailand
- Port Waratah Coal Services - Australia
- Trasteel International SA, Italy
- CNBM International Corporation - China
- Krishnapatnam Port Company Ltd. - India
- CIMB Investment Bank - Malaysia
- Mercator Lines Limited - India
- Energy Development Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Coalindo Energy - Indonesia
- Posco Energy - South Korea
- Holcim Trading Pte Ltd - Singapore
- Thai Mozambique Logistica
- Mercuria Energy - Indonesia
- Goldman Sachs - Singapore
- International Coal Ventures Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Gujarat Mineral Development Corp Ltd - India
- Sojitz Corporation - Japan
- Planning Commission, India
- Central Java Power - Indonesia
- San Jose City I Power Corp, Philippines
- Bukit Makmur.PT - Indonesia
- Australian Commodity Traders Exchange
- Semirara Mining Corp, Philippines
- Star Paper Mills Limited - India
- Alfred C Toepfer International GmbH - Germany
- Miang Besar Coal Terminal - Indonesia
- PowerSource Philippines DevCo
- Bharathi Cement Corporation - India
- Billiton Holdings Pty Ltd - Australia
- Maharashtra Electricity Regulatory Commission - India
- Meenaskhi Energy Private Limited - India
- Karaikal Port Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- White Energy Company Limited
- Lanco Infratech Ltd - India
- Sakthi Sugars Limited - India
- Toyota Tsusho Corporation, Japan
- GN Power Mariveles Coal Plant, Philippines
- Bayan Resources Tbk. - Indonesia
- Indika Energy - Indonesia
- Attock Cement Pakistan Limited
- Manunggal Multi Energi - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Cement Manufacturers Association - India
- Maheswari Brothers Coal Limited - India
- Sindya Power Generating Company Private Ltd
- Ind-Barath Power Infra Limited - India
- Marubeni Corporation - India
- Kobexindo Tractors - Indoneisa
- Heidelberg Cement - Germany
- Wilmar Investment Holdings
- Semirara Mining and Power Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Minerals Council of Australia
- Grasim Industreis Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Electricity Authority, New Zealand
- Merrill Lynch Commodities Europe
- Petron Corporation, Philippines
- Siam City Cement PLC, Thailand
- Kideco Jaya Agung - Indonesia
- Indogreen Group - Indonesia
- Sical Logistics Limited - India
- SN Aboitiz Power Inc, Philippines
- Indo Tambangraya Megah - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- The Treasury - Australian Government
- Commonwealth Bank - Australia
- Edison Trading Spa - Italy
- Essar Steel Hazira Ltd - India
- Directorate Of Revenue Intelligence - India
- Globalindo Alam Lestari - Indonesia
- Africa Commodities Group - South Africa
- LBH Netherlands Bv - Netherlands
- Georgia Ports Authority, United States
- Energy Link Ltd, New Zealand
- GVK Power & Infra Limited - India
- Aditya Birla Group - India
- Interocean Group of Companies - India
- McConnell Dowell - Australia
- Kapuas Tunggal Persada - Indonesia
- South Luzon Thermal Energy Corporation
- Anglo American - United Kingdom
- Mintek Dendrill Indonesia
- Global Business Power Corporation, Philippines
- Pendopo Energi Batubara - Indonesia
- Parliament of New Zealand
- MS Steel International - UAE
- Economic Council, Georgia
- GMR Energy Limited - India
- Directorate General of MIneral and Coal - Indonesia
- New Zealand Coal & Carbon
- Formosa Plastics Group - Taiwan
- Bhoruka Overseas - Indonesia
- IEA Clean Coal Centre - UK
- Therma Luzon, Inc, Philippines
- Wood Mackenzie - Singapore
- Singapore Mercantile Exchange
- Bulk Trading Sa - Switzerland
- Chettinad Cement Corporation Ltd - India
- Intertek Mineral Services - Indonesia
- Ministry of Transport, Egypt
- TeaM Sual Corporation - Philippines
- Cigading International Bulk Terminal - Indonesia
- GAC Shipping (India) Pvt Ltd
- Eastern Coal Council - USA
- Altura Mining Limited, Indonesia
- Carbofer General Trading SA - India
- Ambuja Cements Ltd - India
- Bukit Asam (Persero) Tbk - Indonesia
- Makarim & Taira - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Savvy Resources Ltd - HongKong
- Rio Tinto Coal - Australia
- Borneo Indobara - Indonesia
- Ministry of Finance - Indonesia
- Eastern Energy - Thailand
- European Bulk Services B.V. - Netherlands
- Mjunction Services Limited - India
- Simpson Spence & Young - Indonesia
- Vedanta Resources Plc - India
- India Bulls Power Limited - India
- Iligan Light & Power Inc, Philippines
- Madhucon Powers Ltd - India
- Indonesian Coal Mining Association
- Leighton Contractors Pty Ltd - Australia
- Xindia Steels Limited - India
- Bukit Baiduri Energy - Indonesia
- Kaltim Prima Coal - Indonesia
- Vizag Seaport Private Limited - India
- Orica Mining Services - Indonesia
- VISA Power Limited - India
- Sarangani Energy Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- Siam City Cement - Thailand
- Latin American Coal - Colombia
- Global Green Power PLC Corporation, Philippines
- Uttam Galva Steels Limited - India
- Samtan Co., Ltd - South Korea
- Standard Chartered Bank - UAE
- Oldendorff Carriers - Singapore
- Global Coal Blending Company Limited - Australia
- Independent Power Producers Association of India
- Salva Resources Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Deloitte Consulting - India
- Karbindo Abesyapradhi - Indoneisa
- Gujarat Sidhee Cement - India
- Agrawal Coal Company - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- Ceylon Electricity Board - Sri Lanka
- ASAPP Information Group - India
- TNB Fuel Sdn Bhd - Malaysia
- Ministry of Mines - Canada
- Coal and Oil Company - UAE
- Medco Energi Mining Internasional
- Power Finance Corporation Ltd., India
- Kepco SPC Power Corporation, Philippines
- Thiess Contractors Indonesia
- Bhatia International Limited - India
- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
- Banpu Public Company Limited - Thailand
- Jaiprakash Power Ventures ltd
- Sinarmas Energy and Mining - Indonesia
- PNOC Exploration Corporation - Philippines
- Timah Investasi Mineral - Indoneisa
- Australian Coal Association
- Price Waterhouse Coopers - Russia
- Central Electricity Authority - India
- Parry Sugars Refinery, India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meralco Power Generation, Philippines
- Coastal Gujarat Power Limited - India
- ICICI Bank Limited - India
- Kumho Petrochemical, South Korea
- Riau Bara Harum - Indonesia
- Jindal Steel & Power Ltd - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- The University of Queensland
- Indian Energy Exchange, India
- Sree Jayajothi Cements Limited - India
- London Commodity Brokers - England
- Videocon Industries ltd - India
- Tamil Nadu electricity Board
- IHS Mccloskey Coal Group - USA
- Aboitiz Power Corporation - Philippines
- Rashtriya Ispat Nigam Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Orica Australia Pty. Ltd.
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Renaissance Capital - South Africa
- Bhushan Steel Limited - India
- Barasentosa Lestari - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SMG Consultants - Indonesia
- Tata Chemicals Ltd - India
- Romanian Commodities Exchange
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