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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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Sunday, 03 January 10
BHP TO STAY IN MARUWAI AND TO KEEP 75 PERCENT OF THE STAKE
Despite recent statements that it would pull out completely from Indonesia, the world's largest mining company BHP Billiton has now admitted that i ...
Saturday, 02 January 10
INDONESIAS COAL OUTPUT RISES BY 5%
Indonesia, Asia’s largest coal exporter, produced 254 million tons of coal in 2009, a 5.8 percent increase from 2008 and well ahead of the gov ...
Saturday, 02 January 10
TAIPOWER FORECASTS COAL DEMAND TO SNAP DECLINE
Taiwan Power Co., Asia's biggest importer of thermal coal, expects its demand for the fuel to rise in 2010 after falling for two years as the islan ...
Friday, 01 January 10
COAL INDIA TO START IMPORTING DIRECTLY
According to sources, the coal major has already finalised tender document to import four million tonnes thermal grade coal for supplies to NTPC. Th ...
Thursday, 31 December 09
INDONESIA SEES 2010 MINING INVESTMENT UP 39 PCT
Reuters reported that, Indonesian mining investment is expected to hit $2.5 billion next year, up from $1.81 billion in 2009, supported by greater c ...
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- SMG Consultants - Indonesia
- Videocon Industries ltd - India
- Bharathi Cement Corporation - India
- PetroVietnam Power Coal Import and Supply Company
- Eastern Energy - Thailand
- Bangladesh Power Developement Board
- Bukit Asam (Persero) Tbk - Indonesia
- Siam City Cement - Thailand
- CIMB Investment Bank - Malaysia
- Bhushan Steel Limited - India
- International Coal Ventures Pvt Ltd - India
- Ambuja Cements Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Bulk Trading Sa - Switzerland
- TeaM Sual Corporation - Philippines
- CNBM International Corporation - China
- LBH Netherlands Bv - Netherlands
- Ind-Barath Power Infra Limited - India
- Semirara Mining Corp, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Riau Bara Harum - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Africa Commodities Group - South Africa
- Australian Coal Association
- Asia Pacific Energy Resources Ventures Inc, Philippines
- PTC India Limited - India
- PowerSource Philippines DevCo
- Coalindo Energy - Indonesia
- Grasim Industreis Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Borneo Indobara - Indonesia
- Meenaskhi Energy Private Limited - India
- Salva Resources Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Metalloyd Limited - United Kingdom
- Kobexindo Tractors - Indoneisa
- Orica Australia Pty. Ltd.
- Asmin Koalindo Tuhup - Indonesia
- PNOC Exploration Corporation - Philippines
- India Bulls Power Limited - India
- The Treasury - Australian Government
- New Zealand Coal & Carbon
- Aditya Birla Group - India
- Toyota Tsusho Corporation, Japan
- Kohat Cement Company Ltd. - Pakistan
- Medco Energi Mining Internasional
- Bukit Baiduri Energy - Indonesia
- ASAPP Information Group - India
- Kartika Selabumi Mining - Indonesia
- Dalmia Cement Bharat India
- Anglo American - United Kingdom
- Standard Chartered Bank - UAE
- Siam City Cement PLC, Thailand
- Independent Power Producers Association of India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sinarmas Energy and Mining - Indonesia
- VISA Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Central Java Power - Indonesia
- Georgia Ports Authority, United States
- Parry Sugars Refinery, India
- Mercuria Energy - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Merrill Lynch Commodities Europe
- Therma Luzon, Inc, Philippines
- Kideco Jaya Agung - Indonesia
- Kepco SPC Power Corporation, Philippines
- Rashtriya Ispat Nigam Limited - India
- Tata Chemicals Ltd - India
- Manunggal Multi Energi - Indonesia
- GMR Energy Limited - India
- Global Business Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- South Luzon Thermal Energy Corporation
- Lanco Infratech Ltd - India
- SMC Global Power, Philippines
- Altura Mining Limited, Indonesia
- Kumho Petrochemical, South Korea
- Tamil Nadu electricity Board
- Oldendorff Carriers - Singapore
- Thai Mozambique Logistica
- Madhucon Powers Ltd - India
- Port Waratah Coal Services - Australia
- Semirara Mining and Power Corporation, Philippines
- ICICI Bank Limited - India
- Posco Energy - South Korea
- Deloitte Consulting - India
- Planning Commission, India
- Holcim Trading Pte Ltd - Singapore
- Economic Council, Georgia
- Iligan Light & Power Inc, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indogreen Group - Indonesia
- Pendopo Energi Batubara - Indonesia
- Globalindo Alam Lestari - Indonesia
- Attock Cement Pakistan Limited
- Indo Tambangraya Megah - Indonesia
- Star Paper Mills Limited - India
- Singapore Mercantile Exchange
- GAC Shipping (India) Pvt Ltd
- Price Waterhouse Coopers - Russia
- Marubeni Corporation - India
- Straits Asia Resources Limited - Singapore
- Gujarat Mineral Development Corp Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Kaltim Prima Coal - Indonesia
- Makarim & Taira - Indonesia
- Karaikal Port Pvt Ltd - India
- The University of Queensland
- Directorate Of Revenue Intelligence - India
- Rio Tinto Coal - Australia
- Petron Corporation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Ministry of Finance - Indonesia
- Wood Mackenzie - Singapore
- Malabar Cements Ltd - India
- White Energy Company Limited
- Ministry of Transport, Egypt
- Romanian Commodities Exchange
- San Jose City I Power Corp, Philippines
- McConnell Dowell - Australia
- Trasteel International SA, Italy
- The State Trading Corporation of India Ltd
- Sree Jayajothi Cements Limited - India
- Power Finance Corporation Ltd., India
- Neyveli Lignite Corporation Ltd, - India
- Intertek Mineral Services - Indonesia
- Indika Energy - Indonesia
- Indonesian Coal Mining Association
- MS Steel International - UAE
- Mintek Dendrill Indonesia
- Thiess Contractors Indonesia
- Alfred C Toepfer International GmbH - Germany
- Vizag Seaport Private Limited - India
- Commonwealth Bank - Australia
- Chettinad Cement Corporation Ltd - India
- Chamber of Mines of South Africa
- Formosa Plastics Group - Taiwan
- Vijayanagar Sugar Pvt Ltd - India
- Bukit Makmur.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- Electricity Generating Authority of Thailand
- SN Aboitiz Power Inc, Philippines
- Sojitz Corporation - Japan
- Indian Energy Exchange, India
- Carbofer General Trading SA - India
- Binh Thuan Hamico - Vietnam
- Samtan Co., Ltd - South Korea
- GVK Power & Infra Limited - India
- Jindal Steel & Power Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Edison Trading Spa - Italy
- Heidelberg Cement - Germany
- Kalimantan Lumbung Energi - Indonesia
- Xindia Steels Limited - India
- Australian Commodity Traders Exchange
- Sindya Power Generating Company Private Ltd
- Minerals Council of Australia
- Bayan Resources Tbk. - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Orica Mining Services - Indonesia
- IHS Mccloskey Coal Group - USA
- Banpu Public Company Limited - Thailand
- Indian Oil Corporation Limited
- Antam Resourcindo - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Jaiprakash Power Ventures ltd
- Energy Link Ltd, New Zealand
- Global Green Power PLC Corporation, Philippines
- Bhoruka Overseas - Indonesia
- Simpson Spence & Young - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Goldman Sachs - Singapore
- Ceylon Electricity Board - Sri Lanka
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Ministry of Mines - Canada
- Mercator Lines Limited - India
- Electricity Authority, New Zealand
- Eastern Coal Council - USA
- Offshore Bulk Terminal Pte Ltd, Singapore
- GN Power Mariveles Coal Plant, Philippines
- Leighton Contractors Pty Ltd - Australia
- IEA Clean Coal Centre - UK
- Central Electricity Authority - India
- Uttam Galva Steels Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Parliament of New Zealand
- Sarangani Energy Corporation, Philippines
- Sakthi Sugars Limited - India
- Larsen & Toubro Limited - India
- Savvy Resources Ltd - HongKong
- Agrawal Coal Company - India
- Coal and Oil Company - UAE
- Meralco Power Generation, Philippines
- Baramulti Group, Indonesia
- OPG Power Generation Pvt Ltd - India
- Vedanta Resources Plc - India
- Global Coal Blending Company Limited - Australia
- Wilmar Investment Holdings
- Mjunction Services Limited - India
- London Commodity Brokers - England
- Coastal Gujarat Power Limited - India
- Energy Development Corp, Philippines
- Interocean Group of Companies - India
- Aboitiz Power Corporation - Philippines
- Gujarat Sidhee Cement - India
- Latin American Coal - Colombia
- Bhatia International Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Cement Manufacturers Association - India
- Essar Steel Hazira Ltd - India
- Sical Logistics Limited - India
- Renaissance Capital - South Africa
- Maheswari Brothers Coal Limited - India
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