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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, 20 December 09
GLOBAL COAL MAJORS MAKE THEIR PRESENTATIONS
Major energy companies from four countries, including the U.S., Indonesia and South Africa, have completed detailed presentations before a committee ...
Saturday, 19 December 09
THE FUTURES FOR 2010 - 2012 FIRMED UP COMPARED TO LAST WEEK AND WAS AT AROUND CAPE US$ 28,000 PER DAY - VISTAAR
COALspot.com (Singapore): The freight market continued to soften this week with major drop in the cape size index by almost 21 pct and Panamax , Sup ...
Friday, 18 December 09
CARGOTEC WINS IBJ'S BEST SHIP LOADING / UNLOADING SYSTEM AWARD WITH SIWERTELL
Cargotec’s Siwertell ship unloader has recently won International Bulk Journal’s best ship loading/unloading system award for 2009; out ...
Friday, 18 December 09
THERMAL COAL PROJECT MOVES AHEAD
A proposal for Australia's largest thermal coal project in Queensland's central west has taken a step forward.
Hancock Prospecting is proposing ...
Friday, 18 December 09
CHURCHILL MINING COMPLETES FEASIBILITY STUDY FOR EAST KUTAI COAL PROJECT
Churchill Mining Plc has announced the completion of the feasibility study for its flagship project, the 75% held East Kutai coal project in Indones ...
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- TeaM Sual Corporation - Philippines
- Singapore Mercantile Exchange
- Dalmia Cement Bharat India
- Planning Commission, India
- Merrill Lynch Commodities Europe
- Therma Luzon, Inc, Philippines
- Malabar Cements Ltd - India
- Straits Asia Resources Limited - Singapore
- Attock Cement Pakistan Limited
- Bayan Resources Tbk. - Indonesia
- Electricity Authority, New Zealand
- Goldman Sachs - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Grasim Industreis Ltd - India
- Jaiprakash Power Ventures ltd
- Mintek Dendrill Indonesia
- GMR Energy Limited - India
- Chettinad Cement Corporation Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Port Waratah Coal Services - Australia
- Lanco Infratech Ltd - India
- Coalindo Energy - Indonesia
- Rio Tinto Coal - Australia
- Star Paper Mills Limited - India
- Sree Jayajothi Cements Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- OPG Power Generation Pvt Ltd - India
- Aditya Birla Group - India
- Vizag Seaport Private Limited - India
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Renaissance Capital - South Africa
- Bhatia International Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Bukit Baiduri Energy - Indonesia
- Savvy Resources Ltd - HongKong
- MS Steel International - UAE
- Eastern Coal Council - USA
- Directorate General of MIneral and Coal - Indonesia
- Karaikal Port Pvt Ltd - India
- Formosa Plastics Group - Taiwan
- Leighton Contractors Pty Ltd - Australia
- Kohat Cement Company Ltd. - Pakistan
- PTC India Limited - India
- Wood Mackenzie - Singapore
- Gujarat Mineral Development Corp Ltd - India
- Salva Resources Pvt Ltd - India
- Commonwealth Bank - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Trasteel International SA, Italy
- Indika Energy - Indonesia
- Coastal Gujarat Power Limited - India
- ASAPP Information Group - India
- Altura Mining Limited, Indonesia
- London Commodity Brokers - England
- Meralco Power Generation, Philippines
- Vedanta Resources Plc - India
- Alfred C Toepfer International GmbH - Germany
- Uttam Galva Steels Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Kobexindo Tractors - Indoneisa
- Aboitiz Power Corporation - Philippines
- International Coal Ventures Pvt Ltd - India
- Australian Commodity Traders Exchange
- Deloitte Consulting - India
- Simpson Spence & Young - Indonesia
- Barasentosa Lestari - Indonesia
- Makarim & Taira - Indonesia
- Thai Mozambique Logistica
- Indonesian Coal Mining Association
- Cigading International Bulk Terminal - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Directorate Of Revenue Intelligence - India
- Gujarat Electricity Regulatory Commission - India
- Jorong Barutama Greston.PT - Indonesia
- SN Aboitiz Power Inc, Philippines
- Siam City Cement PLC, Thailand
- Kideco Jaya Agung - Indonesia
- Mercator Lines Limited - India
- Minerals Council of Australia
- Siam City Cement - Thailand
- Baramulti Group, Indonesia
- Kaltim Prima Coal - Indonesia
- Chamber of Mines of South Africa
- Iligan Light & Power Inc, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Mercuria Energy - Indonesia
- Marubeni Corporation - India
- Energy Development Corp, Philippines
- Sakthi Sugars Limited - India
- Toyota Tsusho Corporation, Japan
- Indogreen Group - Indonesia
- Agrawal Coal Company - India
- New Zealand Coal & Carbon
- Mjunction Services Limited - India
- Bhushan Steel Limited - India
- Billiton Holdings Pty Ltd - Australia
- Semirara Mining Corp, Philippines
- Bulk Trading Sa - Switzerland
- Bahari Cakrawala Sebuku - Indonesia
- Anglo American - United Kingdom
- Latin American Coal - Colombia
- Metalloyd Limited - United Kingdom
- SMG Consultants - Indonesia
- Heidelberg Cement - Germany
- Medco Energi Mining Internasional
- McConnell Dowell - Australia
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- Central Java Power - Indonesia
- Essar Steel Hazira Ltd - India
- Manunggal Multi Energi - Indonesia
- Antam Resourcindo - Indonesia
- Larsen & Toubro Limited - India
- Banpu Public Company Limited - Thailand
- Meenaskhi Energy Private Limited - India
- Thiess Contractors Indonesia
- Indo Tambangraya Megah - Indonesia
- Ministry of Mines - Canada
- LBH Netherlands Bv - Netherlands
- Bhoruka Overseas - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- CIMB Investment Bank - Malaysia
- Georgia Ports Authority, United States
- South Luzon Thermal Energy Corporation
- Central Electricity Authority - India
- AsiaOL BioFuels Corp., Philippines
- Semirara Mining and Power Corporation, Philippines
- Parliament of New Zealand
- The University of Queensland
- Oldendorff Carriers - Singapore
- Edison Trading Spa - Italy
- GN Power Mariveles Coal Plant, Philippines
- Ambuja Cements Ltd - India
- ICICI Bank Limited - India
- Ministry of Transport, Egypt
- Orica Australia Pty. Ltd.
- Rashtriya Ispat Nigam Limited - India
- Kumho Petrochemical, South Korea
- Indian Oil Corporation Limited
- Orica Mining Services - Indonesia
- CNBM International Corporation - China
- Sojitz Corporation - Japan
- Kapuas Tunggal Persada - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Riau Bara Harum - Indonesia
- The State Trading Corporation of India Ltd
- Sical Logistics Limited - India
- IEA Clean Coal Centre - UK
- GVK Power & Infra Limited - India
- Bharathi Cement Corporation - India
- Coal and Oil Company - UAE
- Australian Coal Association
- Parry Sugars Refinery, India
- Timah Investasi Mineral - Indoneisa
- Sarangani Energy Corporation, Philippines
- European Bulk Services B.V. - Netherlands
- Tata Chemicals Ltd - India
- Cement Manufacturers Association - India
- White Energy Company Limited
- Samtan Co., Ltd - South Korea
- San Jose City I Power Corp, Philippines
- Kartika Selabumi Mining - Indonesia
- Jindal Steel & Power Ltd - India
- Globalindo Alam Lestari - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Intertek Mineral Services - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Xindia Steels Limited - India
- Kepco SPC Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- Standard Chartered Bank - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Wilmar Investment Holdings
- Eastern Energy - Thailand
- Neyveli Lignite Corporation Ltd, - India
- Sinarmas Energy and Mining - Indonesia
- India Bulls Power Limited - India
- Global Green Power PLC Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Karbindo Abesyapradhi - Indoneisa
- Pendopo Energi Batubara - Indonesia
- Bangladesh Power Developement Board
- Binh Thuan Hamico - Vietnam
- Bukit Makmur.PT - Indonesia
- Indian Energy Exchange, India
- Global Coal Blending Company Limited - Australia
- Romanian Commodities Exchange
- Madhucon Powers Ltd - India
- Global Business Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Economic Council, Georgia
- Electricity Generating Authority of Thailand
- Gujarat Sidhee Cement - India
- Maheswari Brothers Coal Limited - India
- The Treasury - Australian Government
- Interocean Group of Companies - India
- Posco Energy - South Korea
- Ceylon Electricity Board - Sri Lanka
- Sindya Power Generating Company Private Ltd
- Power Finance Corporation Ltd., India
- Petron Corporation, Philippines
- Independent Power Producers Association of India
- Energy Link Ltd, New Zealand
- SMC Global Power, Philippines
- VISA Power Limited - India
- Ind-Barath Power Infra Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Borneo Indobara - Indonesia
- PowerSource Philippines DevCo
- Carbofer General Trading SA - India
- IHS Mccloskey Coal Group - USA
- GAC Shipping (India) Pvt Ltd
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