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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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Friday, 18 December 09
COKING COAL SHORTAGE IN CHINA TO SPUR DEMAND FIGHT WITH JAPAN
China, the world’s largest steelmaker, faces a shortage of coking coal that may drive imports next year and spur a fight for resources with Ja ...
Thursday, 17 December 09
THE 6TH CLEAN ENERGY FORUM - CLEAN COAL 2010
COALspot.com (China) - Press Release: The 6th Clean Energy Forum--Clean Coal 2010 January 27-29, 2010 Renaissance Tianjin Teda Hotel And Conven ...
Thursday, 17 December 09
JFE STEEL INVESTS $555 MILLION IN AUSTRALIA COAL MINE
JFE Steel Corp., Japan’s second- largest producer, will invest 50 billion yen ($555 million) in a coal mine in Queensland, Australia, includin ...
Thursday, 17 December 09
CHINA, INDIA DEMAND MAY BOOST THERMAL COAL PRICE, JPMORGAN SAYS
Demand for thermal coal from China and India may boost prices of the fuel to $80 a metric ton next year amid reduced supplies and lower inventories, ...
Thursday, 17 December 09
RBCT PROBLEMS TO CAUSE STEAM COAL PRICE SPIKE IN Q1
Bugs in the new computer system at South Africa's Richards Bay Coal Terminal and persistent rail problems will make it impossible for exporters to ...
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- Bayan Resources Tbk. - Indonesia
- Bhoruka Overseas - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Goldman Sachs - Singapore
- Mercator Lines Limited - India
- LBH Netherlands Bv - Netherlands
- Aboitiz Power Corporation - Philippines
- The University of Queensland
- McConnell Dowell - Australia
- PetroVietnam Power Coal Import and Supply Company
- Semirara Mining Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- San Jose City I Power Corp, Philippines
- Vedanta Resources Plc - India
- Bukit Asam (Persero) Tbk - Indonesia
- Renaissance Capital - South Africa
- Metalloyd Limited - United Kingdom
- Indogreen Group - Indonesia
- Essar Steel Hazira Ltd - India
- PTC India Limited - India
- Siam City Cement - Thailand
- Thiess Contractors Indonesia
- Power Finance Corporation Ltd., India
- Energy Link Ltd, New Zealand
- Simpson Spence & Young - Indonesia
- ASAPP Information Group - India
- Salva Resources Pvt Ltd - India
- Kaltim Prima Coal - Indonesia
- Aditya Birla Group - India
- Indo Tambangraya Megah - Indonesia
- Grasim Industreis Ltd - India
- MS Steel International - UAE
- Indian Energy Exchange, India
- Petron Corporation, Philippines
- Alfred C Toepfer International GmbH - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Orica Australia Pty. Ltd.
- Coal and Oil Company - UAE
- Therma Luzon, Inc, Philippines
- South Luzon Thermal Energy Corporation
- Uttam Galva Steels Limited - India
- Australian Commodity Traders Exchange
- IHS Mccloskey Coal Group - USA
- Cigading International Bulk Terminal - Indonesia
- CIMB Investment Bank - Malaysia
- Karbindo Abesyapradhi - Indoneisa
- Semirara Mining and Power Corporation, Philippines
- ICICI Bank Limited - India
- The Treasury - Australian Government
- Global Coal Blending Company Limited - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Borneo Indobara - Indonesia
- Port Waratah Coal Services - Australia
- Latin American Coal - Colombia
- Larsen & Toubro Limited - India
- Krishnapatnam Port Company Ltd. - India
- Attock Cement Pakistan Limited
- Planning Commission, India
- Sojitz Corporation - Japan
- Bangladesh Power Developement Board
- Sinarmas Energy and Mining - Indonesia
- Ind-Barath Power Infra Limited - India
- Meenaskhi Energy Private Limited - India
- Kartika Selabumi Mining - Indonesia
- Mercuria Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- IEA Clean Coal Centre - UK
- Leighton Contractors Pty Ltd - Australia
- Ministry of Finance - Indonesia
- GAC Shipping (India) Pvt Ltd
- Rio Tinto Coal - Australia
- Pendopo Energi Batubara - Indonesia
- Globalindo Alam Lestari - Indonesia
- Central Java Power - Indonesia
- Savvy Resources Ltd - HongKong
- Barasentosa Lestari - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Holcim Trading Pte Ltd - Singapore
- Eastern Energy - Thailand
- Eastern Coal Council - USA
- Commonwealth Bank - Australia
- Mintek Dendrill Indonesia
- TeaM Sual Corporation - Philippines
- Manunggal Multi Energi - Indonesia
- Intertek Mineral Services - Indonesia
- Deloitte Consulting - India
- Mjunction Services Limited - India
- Star Paper Mills Limited - India
- Heidelberg Cement - Germany
- PNOC Exploration Corporation - Philippines
- Siam City Cement PLC, Thailand
- Timah Investasi Mineral - Indoneisa
- Coalindo Energy - Indonesia
- New Zealand Coal & Carbon
- Sarangani Energy Corporation, Philippines
- Ministry of Mines - Canada
- AsiaOL BioFuels Corp., Philippines
- International Coal Ventures Pvt Ltd - India
- GVK Power & Infra Limited - India
- Bharathi Cement Corporation - India
- Gujarat Electricity Regulatory Commission - India
- Baramulti Group, Indonesia
- Makarim & Taira - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Oldendorff Carriers - Singapore
- Carbofer General Trading SA - India
- Global Green Power PLC Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- SMG Consultants - Indonesia
- White Energy Company Limited
- Merrill Lynch Commodities Europe
- Agrawal Coal Company - India
- Petrochimia International Co. Ltd.- Taiwan
- Georgia Ports Authority, United States
- OPG Power Generation Pvt Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Maheswari Brothers Coal Limited - India
- Ceylon Electricity Board - Sri Lanka
- Central Electricity Authority - India
- Bukit Makmur.PT - Indonesia
- Straits Asia Resources Limited - Singapore
- Kohat Cement Company Ltd. - Pakistan
- Altura Mining Limited, Indonesia
- Marubeni Corporation - India
- Posco Energy - South Korea
- Kapuas Tunggal Persada - Indonesia
- Cement Manufacturers Association - India
- Toyota Tsusho Corporation, Japan
- Antam Resourcindo - Indonesia
- Karaikal Port Pvt Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Jaiprakash Power Ventures ltd
- Chettinad Cement Corporation Ltd - India
- Kumho Petrochemical, South Korea
- Videocon Industries ltd - India
- London Commodity Brokers - England
- GMR Energy Limited - India
- Banpu Public Company Limited - Thailand
- Kideco Jaya Agung - Indonesia
- Jindal Steel & Power Ltd - India
- Coastal Gujarat Power Limited - India
- Minerals Council of Australia
- The State Trading Corporation of India Ltd
- Singapore Mercantile Exchange
- Neyveli Lignite Corporation Ltd, - India
- Sical Logistics Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Wilmar Investment Holdings
- Bulk Trading Sa - Switzerland
- Bhatia International Limited - India
- Iligan Light & Power Inc, Philippines
- Sree Jayajothi Cements Limited - India
- Miang Besar Coal Terminal - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Sakthi Sugars Limited - India
- Independent Power Producers Association of India
- Madhucon Powers Ltd - India
- SMC Global Power, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Indian Oil Corporation Limited
- CNBM International Corporation - China
- Tamil Nadu electricity Board
- Binh Thuan Hamico - Vietnam
- Ambuja Cements Ltd - India
- Dalmia Cement Bharat India
- Parry Sugars Refinery, India
- Samtan Co., Ltd - South Korea
- Tata Chemicals Ltd - India
- Global Business Power Corporation, Philippines
- Lanco Infratech Ltd - India
- SN Aboitiz Power Inc, Philippines
- Meralco Power Generation, Philippines
- Thai Mozambique Logistica
- Edison Trading Spa - Italy
- Economic Council, Georgia
- Directorate Of Revenue Intelligence - India
- Trasteel International SA, Italy
- Anglo American - United Kingdom
- Electricity Authority, New Zealand
- Vizag Seaport Private Limited - India
- Kepco SPC Power Corporation, Philippines
- Chamber of Mines of South Africa
- Interocean Group of Companies - India
- Jorong Barutama Greston.PT - Indonesia
- Orica Mining Services - Indonesia
- Standard Chartered Bank - UAE
- Malabar Cements Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Parliament of New Zealand
- Energy Development Corp, Philippines
- India Bulls Power Limited - India
- Australian Coal Association
- Romanian Commodities Exchange
- Riau Bara Harum - Indonesia
- Kobexindo Tractors - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- GN Power Mariveles Coal Plant, Philippines
- Indika Energy - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Medco Energi Mining Internasional
- VISA Power Limited - India
- Gujarat Sidhee Cement - India
- Ministry of Transport, Egypt
- Asia Pacific Energy Resources Ventures Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Indonesian Coal Mining Association
- Xindia Steels Limited - India
- Formosa Plastics Group - Taiwan
- Wood Mackenzie - Singapore
- Sindya Power Generating Company Private Ltd
- Bukit Baiduri Energy - Indonesia
- Price Waterhouse Coopers - Russia
- Bhushan Steel Limited - India
- PowerSource Philippines DevCo
- Electricity Generating Authority of Thailand
- Africa Commodities Group - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
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