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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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Saturday, 12 December 09
QUEENSLAND APPROVES A$4 BILLION COAL TERMINAL PROJECT
Queensland’s state government said it has signed a mandate approving development of the A$4 billion ($3.7 billion) Wiggins Island coal termina ...
Saturday, 12 December 09
INDONESIA'S COAL RUSH - SOOTY SUCCESS
Rising demand from China and India is stoking Indonesia’s exports of coal
FOR power stations on the coast of China, it is often cheaper to ...
Thursday, 10 December 09
ENVIROCOAL REGISTERED IN 33 COUNTRIES
PT Adaro concerned to register the brand overseas
PT Adaro Energy Tbk has registered the Envirocoal trademark for its coal products in 33 countri ...
Thursday, 10 December 09
INDIA TO IMPORT 28 MILLION TONNE OF STEAM COAL
Faced with short supply of coal from domestic sources, the Indian power ministry has revised upwards its coal import target for the current fiscal t ...
Thursday, 10 December 09
INDONESIA'S NEW MINING LAW WILL NOT LIMIT COAL EXPORTS, SAYS GOVERNMENT
The government will allow coal producers to continue exporting even if they miss domestic sales requirements, a senior mining official said, marking ...
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- Globalindo Alam Lestari - Indonesia
- Lanco Infratech Ltd - India
- Petron Corporation, Philippines
- Indogreen Group - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- South Luzon Thermal Energy Corporation
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Standard Chartered Bank - UAE
- Wood Mackenzie - Singapore
- Banpu Public Company Limited - Thailand
- Power Finance Corporation Ltd., India
- SN Aboitiz Power Inc, Philippines
- Intertek Mineral Services - Indonesia
- Savvy Resources Ltd - HongKong
- Singapore Mercantile Exchange
- GMR Energy Limited - India
- Samtan Co., Ltd - South Korea
- The University of Queensland
- Orica Australia Pty. Ltd.
- Global Business Power Corporation, Philippines
- Ministry of Transport, Egypt
- Eastern Energy - Thailand
- Australian Coal Association
- Binh Thuan Hamico - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- Baramulti Group, Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Global Coal Blending Company Limited - Australia
- Parry Sugars Refinery, India
- Holcim Trading Pte Ltd - Singapore
- London Commodity Brokers - England
- LBH Netherlands Bv - Netherlands
- Bukit Makmur.PT - Indonesia
- GAC Shipping (India) Pvt Ltd
- Agrawal Coal Company - India
- Maheswari Brothers Coal Limited - India
- Latin American Coal - Colombia
- Jorong Barutama Greston.PT - Indonesia
- Africa Commodities Group - South Africa
- Videocon Industries ltd - India
- Gujarat Sidhee Cement - India
- Gujarat Mineral Development Corp Ltd - India
- Barasentosa Lestari - Indonesia
- The State Trading Corporation of India Ltd
- Medco Energi Mining Internasional
- Bukit Asam (Persero) Tbk - Indonesia
- Heidelberg Cement - Germany
- ICICI Bank Limited - India
- ASAPP Information Group - India
- Wilmar Investment Holdings
- Chamber of Mines of South Africa
- Riau Bara Harum - Indonesia
- Bhushan Steel Limited - India
- Kaltim Prima Coal - Indonesia
- Planning Commission, India
- Ambuja Cements Ltd - India
- Simpson Spence & Young - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Oldendorff Carriers - Singapore
- Attock Cement Pakistan Limited
- SMG Consultants - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Carbofer General Trading SA - India
- Maharashtra Electricity Regulatory Commission - India
- Electricity Generating Authority of Thailand
- Billiton Holdings Pty Ltd - Australia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Leighton Contractors Pty Ltd - Australia
- Independent Power Producers Association of India
- Bhoruka Overseas - Indonesia
- IEA Clean Coal Centre - UK
- Meenaskhi Energy Private Limited - India
- Indian Energy Exchange, India
- Economic Council, Georgia
- Chettinad Cement Corporation Ltd - India
- TeaM Sual Corporation - Philippines
- Sakthi Sugars Limited - India
- IHS Mccloskey Coal Group - USA
- Krishnapatnam Port Company Ltd. - India
- Australian Commodity Traders Exchange
- Tata Chemicals Ltd - India
- Vedanta Resources Plc - India
- Pipit Mutiara Jaya. PT, Indonesia
- Iligan Light & Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Vijayanagar Sugar Pvt Ltd - India
- Timah Investasi Mineral - Indoneisa
- Ceylon Electricity Board - Sri Lanka
- Semirara Mining and Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- New Zealand Coal & Carbon
- Neyveli Lignite Corporation Ltd, - India
- Global Green Power PLC Corporation, Philippines
- Ind-Barath Power Infra Limited - India
- Commonwealth Bank - Australia
- Kalimantan Lumbung Energi - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indian Oil Corporation Limited
- Indika Energy - Indonesia
- San Jose City I Power Corp, Philippines
- Larsen & Toubro Limited - India
- Borneo Indobara - Indonesia
- Bhatia International Limited - India
- Trasteel International SA, Italy
- Rashtriya Ispat Nigam Limited - India
- Malabar Cements Ltd - India
- Mercuria Energy - Indonesia
- Bukit Baiduri Energy - Indonesia
- Orica Mining Services - Indonesia
- The Treasury - Australian Government
- Interocean Group of Companies - India
- Alfred C Toepfer International GmbH - Germany
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Rio Tinto Coal - Australia
- Kumho Petrochemical, South Korea
- Toyota Tsusho Corporation, Japan
- Offshore Bulk Terminal Pte Ltd, Singapore
- Parliament of New Zealand
- Manunggal Multi Energi - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Essar Steel Hazira Ltd - India
- Goldman Sachs - Singapore
- Aditya Birla Group - India
- Minerals Council of Australia
- Straits Asia Resources Limited - Singapore
- Star Paper Mills Limited - India
- Sarangani Energy Corporation, Philippines
- Grasim Industreis Ltd - India
- Romanian Commodities Exchange
- Renaissance Capital - South Africa
- Uttam Galva Steels Limited - India
- PTC India Limited - India
- Sojitz Corporation - Japan
- McConnell Dowell - Australia
- Kobexindo Tractors - Indoneisa
- European Bulk Services B.V. - Netherlands
- Makarim & Taira - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Coal Council - USA
- Central Java Power - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Coalindo Energy - Indonesia
- Antam Resourcindo - Indonesia
- Meralco Power Generation, Philippines
- PNOC Exploration Corporation - Philippines
- Marubeni Corporation - India
- Central Electricity Authority - India
- Asmin Koalindo Tuhup - Indonesia
- VISA Power Limited - India
- Mintek Dendrill Indonesia
- Bayan Resources Tbk. - Indonesia
- Price Waterhouse Coopers - Russia
- Siam City Cement PLC, Thailand
- Indo Tambangraya Megah - Indonesia
- SMC Global Power, Philippines
- White Energy Company Limited
- Coastal Gujarat Power Limited - India
- Pendopo Energi Batubara - Indonesia
- Xindia Steels Limited - India
- Directorate Of Revenue Intelligence - India
- International Coal Ventures Pvt Ltd - India
- Anglo American - United Kingdom
- Deloitte Consulting - India
- Kepco SPC Power Corporation, Philippines
- Energy Development Corp, Philippines
- Metalloyd Limited - United Kingdom
- Directorate General of MIneral and Coal - Indonesia
- Edison Trading Spa - Italy
- Bulk Trading Sa - Switzerland
- Tamil Nadu electricity Board
- Formosa Plastics Group - Taiwan
- Cigading International Bulk Terminal - Indonesia
- Kideco Jaya Agung - Indonesia
- Dalmia Cement Bharat India
- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Electricity Authority, New Zealand
- Thiess Contractors Indonesia
- Gujarat Electricity Regulatory Commission - India
- CIMB Investment Bank - Malaysia
- Vizag Seaport Private Limited - India
- Karaikal Port Pvt Ltd - India
- Indonesian Coal Mining Association
- PowerSource Philippines DevCo
- Mercator Lines Limited - India
- MS Steel International - UAE
- Cement Manufacturers Association - India
- Altura Mining Limited, Indonesia
- Sree Jayajothi Cements Limited - India
- Kartika Selabumi Mining - Indonesia
- Ministry of Mines - Canada
- Coal and Oil Company - UAE
- Merrill Lynch Commodities Europe
- Siam City Cement - Thailand
- Kapuas Tunggal Persada - Indonesia
- Jaiprakash Power Ventures ltd
- Port Waratah Coal Services - Australia
- Bangladesh Power Developement Board
- Mjunction Services Limited - India
- Salva Resources Pvt Ltd - India
- Thai Mozambique Logistica
- Georgia Ports Authority, United States
- Ministry of Finance - Indonesia
- Madhucon Powers Ltd - India
- Jindal Steel & Power Ltd - India
- Aboitiz Power Corporation - Philippines
- Bharathi Cement Corporation - India
- Sinarmas Energy and Mining - Indonesia
- Energy Link Ltd, New Zealand
- CNBM International Corporation - China
- Sical Logistics Limited - India
- Posco Energy - South Korea
- Semirara Mining Corp, Philippines
- India Bulls Power Limited - India
- Sindya Power Generating Company Private Ltd
- GVK Power & Infra Limited - India
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