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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, 14 December 09
RICHARDS BAY COAL TO FINISH EXPANSION IN 1ST QUARTER
Richards Bay Coal Terminal, which ships more than a quarter of Europe’s energy coal, said it will complete its Phase 5 expansion project in th ...
Monday, 14 December 09
SOUTH AFRICAN STEAM COAL PRICES FIRMING UP FOR Q1 TRADE
Reuters reported that Q1 South African coal prices firmed again slightly largely on Asian demand but European delivered prices were little changed.
...
Sunday, 13 December 09
THE FREIGHT MARKET SEEMS TO BE COMING OFF A BIT AND THE MARKET MAY BE SOFT NEXT WEEK - CAPT. REDDY
COALspot.com (Singapore): "The market softened this week especially in the Cape and Panamax segment , where as the Supramax and Handy size was ...
Sunday, 13 December 09
NAPOCOR CUTS COAL IMPORT PROJECTION FOR 2010
STATE-RUN National Power Corp. slashed its planned coal importation for 2010 to only 200,000 metric tons from 3.4 million MT this year, as the gover ...
Sunday, 13 December 09
CHINESE BUYERS SEEK LARGE TONNAGE OF SOUTH AFRICA STEAM COAL
Reuters reported that Chinese utilities on the coast and inland are seeking several cape cargoes each of South African coal for 2010 delivery becaus ...
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- Africa Commodities Group - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Wood Mackenzie - Singapore
- GAC Shipping (India) Pvt Ltd
- Thiess Contractors Indonesia
- Toyota Tsusho Corporation, Japan
- PetroVietnam Power Coal Import and Supply Company
- Bhushan Steel Limited - India
- PNOC Exploration Corporation - Philippines
- Merrill Lynch Commodities Europe
- Maharashtra Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Bukit Baiduri Energy - Indonesia
- Central Electricity Authority - India
- Kepco SPC Power Corporation, Philippines
- Deloitte Consulting - India
- Mjunction Services Limited - India
- Madhucon Powers Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Coalindo Energy - Indonesia
- Standard Chartered Bank - UAE
- Bangladesh Power Developement Board
- Edison Trading Spa - Italy
- Tata Chemicals Ltd - India
- Trasteel International SA, Italy
- Heidelberg Cement - Germany
- Global Green Power PLC Corporation, Philippines
- ICICI Bank Limited - India
- Salva Resources Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Sinarmas Energy and Mining - Indonesia
- PTC India Limited - India
- Attock Cement Pakistan Limited
- AsiaOL BioFuels Corp., Philippines
- Krishnapatnam Port Company Ltd. - India
- Indian Energy Exchange, India
- GVK Power & Infra Limited - India
- Semirara Mining and Power Corporation, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Oldendorff Carriers - Singapore
- Price Waterhouse Coopers - Russia
- Bhatia International Limited - India
- Aditya Birla Group - India
- Global Coal Blending Company Limited - Australia
- Bayan Resources Tbk. - Indonesia
- Ambuja Cements Ltd - India
- GMR Energy Limited - India
- Kobexindo Tractors - Indoneisa
- Sree Jayajothi Cements Limited - India
- White Energy Company Limited
- Interocean Group of Companies - India
- Gujarat Mineral Development Corp Ltd - India
- Electricity Authority, New Zealand
- Orica Mining Services - Indonesia
- Medco Energi Mining Internasional
- Marubeni Corporation - India
- Asmin Koalindo Tuhup - Indonesia
- Port Waratah Coal Services - Australia
- Energy Development Corp, Philippines
- Ministry of Finance - Indonesia
- Planning Commission, India
- Kideco Jaya Agung - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Mercuria Energy - Indonesia
- Romanian Commodities Exchange
- LBH Netherlands Bv - Netherlands
- Bulk Trading Sa - Switzerland
- Bukit Asam (Persero) Tbk - Indonesia
- Indogreen Group - Indonesia
- CIMB Investment Bank - Malaysia
- Therma Luzon, Inc, Philippines
- Gujarat Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- Carbofer General Trading SA - India
- McConnell Dowell - Australia
- Straits Asia Resources Limited - Singapore
- Banpu Public Company Limited - Thailand
- Energy Link Ltd, New Zealand
- TeaM Sual Corporation - Philippines
- Baramulti Group, Indonesia
- Chamber of Mines of South Africa
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bharathi Cement Corporation - India
- Directorate General of MIneral and Coal - Indonesia
- Sical Logistics Limited - India
- Singapore Mercantile Exchange
- Directorate Of Revenue Intelligence - India
- Neyveli Lignite Corporation Ltd, - India
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- Renaissance Capital - South Africa
- Semirara Mining Corp, Philippines
- Sarangani Energy Corporation, Philippines
- CNBM International Corporation - China
- Agrawal Coal Company - India
- Coastal Gujarat Power Limited - India
- Georgia Ports Authority, United States
- SMG Consultants - Indonesia
- The University of Queensland
- Kalimantan Lumbung Energi - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Barasentosa Lestari - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Gujarat Sidhee Cement - India
- Australian Coal Association
- Bank of Tokyo Mitsubishi UFJ Ltd
- Intertek Mineral Services - Indonesia
- Posco Energy - South Korea
- Pipit Mutiara Jaya. PT, Indonesia
- Tamil Nadu electricity Board
- Global Business Power Corporation, Philippines
- Aboitiz Power Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Anglo American - United Kingdom
- Minerals Council of Australia
- London Commodity Brokers - England
- SN Aboitiz Power Inc, Philippines
- Eastern Energy - Thailand
- Sindya Power Generating Company Private Ltd
- Electricity Generating Authority of Thailand
- Eastern Coal Council - USA
- Antam Resourcindo - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Parry Sugars Refinery, India
- Orica Australia Pty. Ltd.
- Globalindo Alam Lestari - Indonesia
- Formosa Plastics Group - Taiwan
- Meenaskhi Energy Private Limited - India
- Meralco Power Generation, Philippines
- Ceylon Electricity Board - Sri Lanka
- Pendopo Energi Batubara - Indonesia
- Timah Investasi Mineral - Indoneisa
- Mintek Dendrill Indonesia
- Power Finance Corporation Ltd., India
- Riau Bara Harum - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- New Zealand Coal & Carbon
- Bukit Makmur.PT - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Wilmar Investment Holdings
- IEA Clean Coal Centre - UK
- Alfred C Toepfer International GmbH - Germany
- IHS Mccloskey Coal Group - USA
- Karaikal Port Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Cement Manufacturers Association - India
- Chettinad Cement Corporation Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Dalmia Cement Bharat India
- Samtan Co., Ltd - South Korea
- Bhoruka Overseas - Indonesia
- Vedanta Resources Plc - India
- Independent Power Producers Association of India
- Star Paper Mills Limited - India
- Ministry of Mines - Canada
- Kumho Petrochemical, South Korea
- ASAPP Information Group - India
- Goldman Sachs - Singapore
- Vizag Seaport Private Limited - India
- Indonesian Coal Mining Association
- Altura Mining Limited, Indonesia
- Indika Energy - Indonesia
- MS Steel International - UAE
- Iligan Light & Power Inc, Philippines
- Central Java Power - Indonesia
- Binh Thuan Hamico - Vietnam
- Siam City Cement PLC, Thailand
- Maheswari Brothers Coal Limited - India
- Kartika Selabumi Mining - Indonesia
- Rio Tinto Coal - Australia
- European Bulk Services B.V. - Netherlands
- Videocon Industries ltd - India
- Mercator Lines Limited - India
- Kaltim Prima Coal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- PowerSource Philippines DevCo
- South Luzon Thermal Energy Corporation
- Indo Tambangraya Megah - Indonesia
- Borneo Indobara - Indonesia
- Metalloyd Limited - United Kingdom
- Petron Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- VISA Power Limited - India
- Commonwealth Bank - Australia
- The State Trading Corporation of India Ltd
- Jindal Steel & Power Ltd - India
- India Bulls Power Limited - India
- Malabar Cements Ltd - India
- Thai Mozambique Logistica
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- SMC Global Power, Philippines
- Essar Steel Hazira Ltd - India
- International Coal Ventures Pvt Ltd - India
- Parliament of New Zealand
- Lanco Infratech Ltd - India
- Rashtriya Ispat Nigam Limited - India
- Sojitz Corporation - Japan
- Grasim Industreis Ltd - India
- Economic Council, Georgia
- Ministry of Transport, Egypt
- Indian Oil Corporation Limited
- Uttam Galva Steels Limited - India
- San Jose City I Power Corp, Philippines
- Manunggal Multi Energi - Indonesia
- Siam City Cement - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Ind-Barath Power Infra Limited - India
- Australian Commodity Traders Exchange
- Coal and Oil Company - UAE
- Savvy Resources Ltd - HongKong
- Larsen & Toubro Limited - India
- Xindia Steels Limited - India
- Latin American Coal - Colombia
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