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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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Monday, 28 December 09
INDONESIAN MINER LINKED TO FUGITIVE FINANCIER
The Energy Ministry is unlikely to approve the transfer of ownership of coal miner PT Riau Baraharum on allegations it is indirectly owned by fugiti ...
Monday, 28 December 09
SOMALI PIRATES SAY $4 MILLION RANSOM PAID FOR COAL SHIP
A helicopter dropped a $4 million ransom payment on Sunday on to the deck of a Chinese coal ship hijacked by Somali pirates in mid-October, a pirate ...
Saturday, 26 December 09
COAL INDIA, RIO TINTO MAY HOLD TALKS SOON ON TIE-UP
State owned Coal India Limited (CIL), which is in the race for acquisition of overseas coal properties to plug the demand supply shortfall of the dr ...
Saturday, 26 December 09
COKING COAL PRICES MAY RISE BY 10 - 15% FROM APRIL 2010
The price of coking coal, one of the key raw materials for steel production, is likely to increase by 10-15% in next April, the month in which m ...
Saturday, 26 December 09
COAL INDIA SECURES TWO BLOCKS IN MOZAMBIQUE
It's official now. Mozambique has awarded two coal acreages in its Maotize region with an estimated one billion tonne reserves to Coal India Ltd bu ...
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- Xindia Steels Limited - India
- Parry Sugars Refinery, India
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- Binh Thuan Hamico - Vietnam
- Oldendorff Carriers - Singapore
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Tata Chemicals Ltd - India
- Larsen & Toubro Limited - India
- Baramulti Group, Indonesia
- Kohat Cement Company Ltd. - Pakistan
- PetroVietnam Power Coal Import and Supply Company
- Jindal Steel & Power Ltd - India
- India Bulls Power Limited - India
- Thai Mozambique Logistica
- Bayan Resources Tbk. - Indonesia
- Salva Resources Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Energy Link Ltd, New Zealand
- ASAPP Information Group - India
- Aboitiz Power Corporation - Philippines
- The State Trading Corporation of India Ltd
- Intertek Mineral Services - Indonesia
- Pendopo Energi Batubara - Indonesia
- SN Aboitiz Power Inc, Philippines
- Wilmar Investment Holdings
- Gujarat Electricity Regulatory Commission - India
- Ambuja Cements Ltd - India
- Sical Logistics Limited - India
- London Commodity Brokers - England
- Ceylon Electricity Board - Sri Lanka
- Savvy Resources Ltd - HongKong
- Grasim Industreis Ltd - India
- Planning Commission, India
- Sarangani Energy Corporation, Philippines
- Madhucon Powers Ltd - India
- Karbindo Abesyapradhi - Indoneisa
- Merrill Lynch Commodities Europe
- Africa Commodities Group - South Africa
- Riau Bara Harum - Indonesia
- Formosa Plastics Group - Taiwan
- White Energy Company Limited
- Bukit Makmur.PT - Indonesia
- Meenaskhi Energy Private Limited - India
- Sakthi Sugars Limited - India
- Eastern Coal Council - USA
- Sree Jayajothi Cements Limited - India
- Georgia Ports Authority, United States
- Gujarat Sidhee Cement - India
- Semirara Mining and Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Metalloyd Limited - United Kingdom
- Ministry of Finance - Indonesia
- Coastal Gujarat Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Vedanta Resources Plc - India
- Meralco Power Generation, Philippines
- SMC Global Power, Philippines
- Holcim Trading Pte Ltd - Singapore
- Sinarmas Energy and Mining - Indonesia
- Australian Commodity Traders Exchange
- Bhushan Steel Limited - India
- Goldman Sachs - Singapore
- The University of Queensland
- Vijayanagar Sugar Pvt Ltd - India
- Edison Trading Spa - Italy
- Minerals Council of Australia
- GN Power Mariveles Coal Plant, Philippines
- Videocon Industries ltd - India
- Rio Tinto Coal - Australia
- CIMB Investment Bank - Malaysia
- Bukit Baiduri Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- European Bulk Services B.V. - Netherlands
- The Treasury - Australian Government
- Chamber of Mines of South Africa
- Bulk Trading Sa - Switzerland
- GMR Energy Limited - India
- Eastern Energy - Thailand
- Kalimantan Lumbung Energi - Indonesia
- Sindya Power Generating Company Private Ltd
- San Jose City I Power Corp, Philippines
- Alfred C Toepfer International GmbH - Germany
- Australian Coal Association
- Deloitte Consulting - India
- PTC India Limited - India
- Wood Mackenzie - Singapore
- Mintek Dendrill Indonesia
- Jaiprakash Power Ventures ltd
- McConnell Dowell - Australia
- Global Coal Blending Company Limited - Australia
- Siam City Cement - Thailand
- Energy Development Corp, Philippines
- IEA Clean Coal Centre - UK
- GAC Shipping (India) Pvt Ltd
- Iligan Light & Power Inc, Philippines
- Billiton Holdings Pty Ltd - Australia
- ICICI Bank Limited - India
- Indonesian Coal Mining Association
- Miang Besar Coal Terminal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Coal and Oil Company - UAE
- Malabar Cements Ltd - India
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Simpson Spence & Young - Indonesia
- Bharathi Cement Corporation - India
- Indian Oil Corporation Limited
- PowerSource Philippines DevCo
- Ministry of Mines - Canada
- Heidelberg Cement - Germany
- Anglo American - United Kingdom
- Thiess Contractors Indonesia
- Trasteel International SA, Italy
- Interocean Group of Companies - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Renaissance Capital - South Africa
- Petrochimia International Co. Ltd.- Taiwan
- Sojitz Corporation - Japan
- Electricity Authority, New Zealand
- Samtan Co., Ltd - South Korea
- South Luzon Thermal Energy Corporation
- Bahari Cakrawala Sebuku - Indonesia
- Altura Mining Limited, Indonesia
- Star Paper Mills Limited - India
- Commonwealth Bank - Australia
- Economic Council, Georgia
- Asmin Koalindo Tuhup - Indonesia
- GVK Power & Infra Limited - India
- Central Electricity Authority - India
- Attock Cement Pakistan Limited
- Uttam Galva Steels Limited - India
- Cigading International Bulk Terminal - Indonesia
- Makarim & Taira - Indonesia
- Kideco Jaya Agung - Indonesia
- Standard Chartered Bank - UAE
- Vizag Seaport Private Limited - India
- Latin American Coal - Colombia
- Indika Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Aditya Birla Group - India
- Mjunction Services Limited - India
- Siam City Cement PLC, Thailand
- Kartika Selabumi Mining - Indonesia
- Indian Energy Exchange, India
- Parliament of New Zealand
- Electricity Generating Authority of Thailand
- Therma Luzon, Inc, Philippines
- Bhoruka Overseas - Indonesia
- Power Finance Corporation Ltd., India
- Posco Energy - South Korea
- Independent Power Producers Association of India
- Cement Manufacturers Association - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Maharashtra Electricity Regulatory Commission - India
- Ministry of Transport, Egypt
- Indogreen Group - Indonesia
- Singapore Mercantile Exchange
- New Zealand Coal & Carbon
- Karaikal Port Pvt Ltd - India
- Petron Corporation, Philippines
- Barasentosa Lestari - Indonesia
- Lanco Infratech Ltd - India
- Antam Resourcindo - Indonesia
- Romanian Commodities Exchange
- Coalindo Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Port Waratah Coal Services - Australia
- Central Java Power - Indonesia
- IHS Mccloskey Coal Group - USA
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Kaltim Prima Coal - Indonesia
- Mercuria Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Semirara Mining Corp, Philippines
- Dalmia Cement Bharat India
- Leighton Contractors Pty Ltd - Australia
- Kapuas Tunggal Persada - Indonesia
- Orica Australia Pty. Ltd.
- Global Green Power PLC Corporation, Philippines
- Kumho Petrochemical, South Korea
- Marubeni Corporation - India
- AsiaOL BioFuels Corp., Philippines
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- Global Business Power Corporation, Philippines
- Essar Steel Hazira Ltd - India
- Maheswari Brothers Coal Limited - India
- Borneo Indobara - Indonesia
- Chettinad Cement Corporation Ltd - India
- VISA Power Limited - India
- Tamil Nadu electricity Board
- Directorate Of Revenue Intelligence - India
- Agrawal Coal Company - India
- Gujarat Mineral Development Corp Ltd - India
- Globalindo Alam Lestari - Indonesia
- MS Steel International - UAE
- Kepco SPC Power Corporation, Philippines
- Mercator Lines Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Price Waterhouse Coopers - Russia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- CNBM International Corporation - China
- Straits Asia Resources Limited - Singapore
- Medco Energi Mining Internasional
- Manunggal Multi Energi - Indonesia
- OPG Power Generation Pvt Ltd - India
- Bangladesh Power Developement Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- LBH Netherlands Bv - Netherlands
- PNOC Exploration Corporation - Philippines
- TeaM Sual Corporation - Philippines
- SMG Consultants - Indonesia
- Orica Mining Services - Indonesia
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