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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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- Malabar Cements Ltd - India
- Coastal Gujarat Power Limited - India
- Indonesian Coal Mining Association
- Bhatia International Limited - India
- PNOC Exploration Corporation - Philippines
- Central Electricity Authority - India
- Energy Link Ltd, New Zealand
- Rio Tinto Coal - Australia
- Kalimantan Lumbung Energi - Indonesia
- Lanco Infratech Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mjunction Services Limited - India
- New Zealand Coal & Carbon
- Deloitte Consulting - India
- AsiaOL BioFuels Corp., Philippines
- LBH Netherlands Bv - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Indian Oil Corporation Limited
- Holcim Trading Pte Ltd - Singapore
- Trasteel International SA, Italy
- Parliament of New Zealand
- Port Waratah Coal Services - Australia
- Sical Logistics Limited - India
- Australian Commodity Traders Exchange
- Petrochimia International Co. Ltd.- Taiwan
- Gujarat Electricity Regulatory Commission - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Riau Bara Harum - Indonesia
- Maheswari Brothers Coal Limited - India
- Timah Investasi Mineral - Indoneisa
- Eastern Coal Council - USA
- Kohat Cement Company Ltd. - Pakistan
- Energy Development Corp, Philippines
- Directorate Of Revenue Intelligence - India
- Anglo American - United Kingdom
- Uttam Galva Steels Limited - India
- Wood Mackenzie - Singapore
- Eastern Energy - Thailand
- GN Power Mariveles Coal Plant, Philippines
- Pendopo Energi Batubara - Indonesia
- Bukit Baiduri Energy - Indonesia
- Vizag Seaport Private Limited - India
- Binh Thuan Hamico - Vietnam
- Jorong Barutama Greston.PT - Indonesia
- Tata Chemicals Ltd - India
- SMG Consultants - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- MS Steel International - UAE
- Larsen & Toubro Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Bahari Cakrawala Sebuku - Indonesia
- IHS Mccloskey Coal Group - USA
- Indogreen Group - Indonesia
- Commonwealth Bank - Australia
- Posco Energy - South Korea
- Karbindo Abesyapradhi - Indoneisa
- Karaikal Port Pvt Ltd - India
- Makarim & Taira - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Coalindo Energy - Indonesia
- Savvy Resources Ltd - HongKong
- Bhoruka Overseas - Indonesia
- Gujarat Sidhee Cement - India
- Cement Manufacturers Association - India
- Krishnapatnam Port Company Ltd. - India
- Minerals Council of Australia
- Electricity Generating Authority of Thailand
- International Coal Ventures Pvt Ltd - India
- Latin American Coal - Colombia
- Pipit Mutiara Jaya. PT, Indonesia
- IEA Clean Coal Centre - UK
- Videocon Industries ltd - India
- GVK Power & Infra Limited - India
- Siam City Cement - Thailand
- Dalmia Cement Bharat India
- SN Aboitiz Power Inc, Philippines
- Thai Mozambique Logistica
- Neyveli Lignite Corporation Ltd, - India
- Global Business Power Corporation, Philippines
- Ministry of Mines - Canada
- Grasim Industreis Ltd - India
- Antam Resourcindo - Indonesia
- Economic Council, Georgia
- Asmin Koalindo Tuhup - Indonesia
- Jaiprakash Power Ventures ltd
- Bangladesh Power Developement Board
- Siam City Cement PLC, Thailand
- European Bulk Services B.V. - Netherlands
- VISA Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Semirara Mining Corp, Philippines
- ASAPP Information Group - India
- Iligan Light & Power Inc, Philippines
- Xindia Steels Limited - India
- Central Java Power - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Edison Trading Spa - Italy
- Ind-Barath Power Infra Limited - India
- Orica Australia Pty. Ltd.
- Semirara Mining and Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- Bukit Makmur.PT - Indonesia
- Attock Cement Pakistan Limited
- Jindal Steel & Power Ltd - India
- Manunggal Multi Energi - Indonesia
- Bayan Resources Tbk. - Indonesia
- Ministry of Transport, Egypt
- Standard Chartered Bank - UAE
- McConnell Dowell - Australia
- Madhucon Powers Ltd - India
- Sindya Power Generating Company Private Ltd
- Simpson Spence & Young - Indonesia
- Chettinad Cement Corporation Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coal and Oil Company - UAE
- Vijayanagar Sugar Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Agrawal Coal Company - India
- San Jose City I Power Corp, Philippines
- Intertek Mineral Services - Indonesia
- Kartika Selabumi Mining - Indonesia
- Bharathi Cement Corporation - India
- GAC Shipping (India) Pvt Ltd
- Essar Steel Hazira Ltd - India
- Global Green Power PLC Corporation, Philippines
- Renaissance Capital - South Africa
- India Bulls Power Limited - India
- Independent Power Producers Association of India
- Oldendorff Carriers - Singapore
- Rashtriya Ispat Nigam Limited - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Wilmar Investment Holdings
- Interocean Group of Companies - India
- Parry Sugars Refinery, India
- Bhushan Steel Limited - India
- Medco Energi Mining Internasional
- Formosa Plastics Group - Taiwan
- Aditya Birla Group - India
- TeaM Sual Corporation - Philippines
- Barasentosa Lestari - Indonesia
- SMC Global Power, Philippines
- Sarangani Energy Corporation, Philippines
- Kideco Jaya Agung - Indonesia
- OPG Power Generation Pvt Ltd - India
- Borneo Indobara - Indonesia
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- Electricity Authority, New Zealand
- Goldman Sachs - Singapore
- Australian Coal Association
- Price Waterhouse Coopers - Russia
- Metalloyd Limited - United Kingdom
- Africa Commodities Group - South Africa
- Indika Energy - Indonesia
- Marubeni Corporation - India
- Bulk Trading Sa - Switzerland
- Meenaskhi Energy Private Limited - India
- Billiton Holdings Pty Ltd - Australia
- Miang Besar Coal Terminal - Indonesia
- Meralco Power Generation, Philippines
- Baramulti Group, Indonesia
- Ambuja Cements Ltd - India
- Cigading International Bulk Terminal - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Georgia Ports Authority, United States
- Global Coal Blending Company Limited - Australia
- Sree Jayajothi Cements Limited - India
- Ministry of Finance - Indonesia
- GMR Energy Limited - India
- Indian Energy Exchange, India
- The University of Queensland
- Toyota Tsusho Corporation, Japan
- Alfred C Toepfer International GmbH - Germany
- Kaltim Prima Coal - Indonesia
- Carbofer General Trading SA - India
- Romanian Commodities Exchange
- Vedanta Resources Plc - India
- Straits Asia Resources Limited - Singapore
- Kepco SPC Power Corporation, Philippines
- PowerSource Philippines DevCo
- Chamber of Mines of South Africa
- Thiess Contractors Indonesia
- Tamil Nadu electricity Board
- London Commodity Brokers - England
- Mintek Dendrill Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Leighton Contractors Pty Ltd - Australia
- Aboitiz Power Corporation - Philippines
- The Treasury - Australian Government
- Sakthi Sugars Limited - India
- Petron Corporation, Philippines
- Ceylon Electricity Board - Sri Lanka
- South Luzon Thermal Energy Corporation
- Banpu Public Company Limited - Thailand
- Power Finance Corporation Ltd., India
- Salva Resources Pvt Ltd - India
- Merrill Lynch Commodities Europe
- Globalindo Alam Lestari - Indonesia
- The State Trading Corporation of India Ltd
- Samtan Co., Ltd - South Korea
- White Energy Company Limited
- Singapore Mercantile Exchange
- Mercuria Energy - Indonesia
- Mercator Lines Limited - India
- ICICI Bank Limited - India
- Therma Luzon, Inc, Philippines
- Planning Commission, India
- Heidelberg Cement - Germany
- Kobexindo Tractors - Indoneisa
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- CNBM International Corporation - China
- Orica Mining Services - Indonesia
- CIMB Investment Bank - Malaysia
- PTC India Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
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