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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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Wednesday, 09 December 09
INDONESIA'S RECAPITAL TO PAY $1.48 BLN FOR BERAU
Recapital Advisors, an Indonesian investment firm, will pay $1.48 billion in cash and notes to buy coal miner PT Berau Coal, $300 million of which i ...
Wednesday, 09 December 09
COAL INDIA YET TO IMPLEMENT IMPORT LINKED PRICES
Coal India Ltd is adopting a conservative approach in pricing despite being allowed to charge import-linked price for the country's minuscule reser ...
Wednesday, 09 December 09
INDIA NEEDS TO IMPORT 29 MILLION TONNE STEAM COAL IN 2009 - 10
Mr Sriprakash Jaiswal Indian minister of state (Independent Charge) for coal informed the Rajya Sabha that Central Electricity Authority has estimat ...
Tuesday, 08 December 09
MEC TO SHIP 2M T INDONESIA COAL TO INDIA IN 2010 - REUTER'S INTERVIEW
The UAE's Middle East Coal plans to start operation of coal mines in Indonesia's East Kalimantan province next year with initial production of 2 m ...
Tuesday, 08 December 09
RICHARDS BAY COAL SHIPMENTS FELL 11% IN NOVEMBER FROM YEAR AGO
Coal exports from South Africa’s Richards Bay, site of the continent’s largest export terminal for the fuel, fell 11 percent in November ...
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- Videocon Industries ltd - India
- SMG Consultants - Indonesia
- Independent Power Producers Association of India
- The University of Queensland
- Global Coal Blending Company Limited - Australia
- TNB Fuel Sdn Bhd - Malaysia
- Aboitiz Power Corporation - Philippines
- Indian Energy Exchange, India
- Minerals Council of Australia
- Chettinad Cement Corporation Ltd - India
- Ministry of Transport, Egypt
- Madhucon Powers Ltd - India
- Attock Cement Pakistan Limited
- Ceylon Electricity Board - Sri Lanka
- Asmin Koalindo Tuhup - Indonesia
- San Jose City I Power Corp, Philippines
- GMR Energy Limited - India
- Banpu Public Company Limited - Thailand
- IHS Mccloskey Coal Group - USA
- Australian Commodity Traders Exchange
- Ministry of Finance - Indonesia
- Trasteel International SA, Italy
- Savvy Resources Ltd - HongKong
- McConnell Dowell - Australia
- GVK Power & Infra Limited - India
- Tamil Nadu electricity Board
- Energy Link Ltd, New Zealand
- Gujarat Mineral Development Corp Ltd - India
- The State Trading Corporation of India Ltd
- Australian Coal Association
- Parry Sugars Refinery, India
- Ministry of Mines - Canada
- Sakthi Sugars Limited - India
- Heidelberg Cement - Germany
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Binh Thuan Hamico - Vietnam
- Global Green Power PLC Corporation, Philippines
- Tata Chemicals Ltd - India
- Meralco Power Generation, Philippines
- Cement Manufacturers Association - India
- Siam City Cement - Thailand
- Kohat Cement Company Ltd. - Pakistan
- Mjunction Services Limited - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Edison Trading Spa - Italy
- Bhatia International Limited - India
- Eastern Energy - Thailand
- Leighton Contractors Pty Ltd - Australia
- Orica Mining Services - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Indian Oil Corporation Limited
- Vizag Seaport Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- VISA Power Limited - India
- Bangladesh Power Developement Board
- Vedanta Resources Plc - India
- Bahari Cakrawala Sebuku - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Semirara Mining Corp, Philippines
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- European Bulk Services B.V. - Netherlands
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ind-Barath Power Infra Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Rio Tinto Coal - Australia
- Jaiprakash Power Ventures ltd
- Manunggal Multi Energi - Indonesia
- SN Aboitiz Power Inc, Philippines
- India Bulls Power Limited - India
- London Commodity Brokers - England
- Directorate General of MIneral and Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Baramulti Group, Indonesia
- Thai Mozambique Logistica
- Kepco SPC Power Corporation, Philippines
- Sarangani Energy Corporation, Philippines
- Indo Tambangraya Megah - Indonesia
- SMC Global Power, Philippines
- Alfred C Toepfer International GmbH - Germany
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wilmar Investment Holdings
- Pendopo Energi Batubara - Indonesia
- Chamber of Mines of South Africa
- Petron Corporation, Philippines
- Miang Besar Coal Terminal - Indonesia
- PowerSource Philippines DevCo
- Holcim Trading Pte Ltd - Singapore
- Formosa Plastics Group - Taiwan
- Bhoruka Overseas - Indonesia
- Kideco Jaya Agung - Indonesia
- Thiess Contractors Indonesia
- TeaM Sual Corporation - Philippines
- Lanco Infratech Ltd - India
- Power Finance Corporation Ltd., India
- Electricity Generating Authority of Thailand
- Larsen & Toubro Limited - India
- White Energy Company Limited
- Bhushan Steel Limited - India
- Sree Jayajothi Cements Limited - India
- PTC India Limited - India
- CIMB Investment Bank - Malaysia
- Singapore Mercantile Exchange
- Commonwealth Bank - Australia
- Semirara Mining and Power Corporation, Philippines
- Kapuas Tunggal Persada - Indonesia
- Intertek Mineral Services - Indonesia
- Central Electricity Authority - India
- Latin American Coal - Colombia
- Bharathi Cement Corporation - India
- Xindia Steels Limited - India
- Agrawal Coal Company - India
- Anglo American - United Kingdom
- Kartika Selabumi Mining - Indonesia
- Indogreen Group - Indonesia
- Indika Energy - Indonesia
- Bulk Trading Sa - Switzerland
- Barasentosa Lestari - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- PNOC Exploration Corporation - Philippines
- Indonesian Coal Mining Association
- Gujarat Electricity Regulatory Commission - India
- Bukit Makmur.PT - Indonesia
- Dalmia Cement Bharat India
- Toyota Tsusho Corporation, Japan
- Karbindo Abesyapradhi - Indoneisa
- Wood Mackenzie - Singapore
- New Zealand Coal & Carbon
- Standard Chartered Bank - UAE
- Economic Council, Georgia
- Altura Mining Limited, Indonesia
- Billiton Holdings Pty Ltd - Australia
- Bayan Resources Tbk. - Indonesia
- Siam City Cement PLC, Thailand
- Straits Asia Resources Limited - Singapore
- Timah Investasi Mineral - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Energy Development Corp, Philippines
- Mintek Dendrill Indonesia
- Salva Resources Pvt Ltd - India
- Kalimantan Lumbung Energi - Indonesia
- Gujarat Sidhee Cement - India
- Port Waratah Coal Services - Australia
- Sinarmas Energy and Mining - Indonesia
- Antam Resourcindo - Indonesia
- IEA Clean Coal Centre - UK
- Bukit Baiduri Energy - Indonesia
- Central Java Power - Indonesia
- Price Waterhouse Coopers - Russia
- Globalindo Alam Lestari - Indonesia
- Mercator Lines Limited - India
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Merrill Lynch Commodities Europe
- Carbofer General Trading SA - India
- International Coal Ventures Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Makarim & Taira - Indonesia
- Marubeni Corporation - India
- Uttam Galva Steels Limited - India
- The Treasury - Australian Government
- Mercuria Energy - Indonesia
- Romanian Commodities Exchange
- Ambuja Cements Ltd - India
- Interocean Group of Companies - India
- AsiaOL BioFuels Corp., Philippines
- Directorate Of Revenue Intelligence - India
- Coal and Oil Company - UAE
- Aditya Birla Group - India
- Planning Commission, India
- Electricity Authority, New Zealand
- Borneo Indobara - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Oldendorff Carriers - Singapore
- Metalloyd Limited - United Kingdom
- Jindal Steel & Power Ltd - India
- Karaikal Port Pvt Ltd - India
- Kumho Petrochemical, South Korea
- CNBM International Corporation - China
- GN Power Mariveles Coal Plant, Philippines
- MS Steel International - UAE
- Deloitte Consulting - India
- Sical Logistics Limited - India
- Orica Australia Pty. Ltd.
- Therma Luzon, Inc, Philippines
- South Luzon Thermal Energy Corporation
- Parliament of New Zealand
- Iligan Light & Power Inc, Philippines
- Sindya Power Generating Company Private Ltd
- Posco Energy - South Korea
- Riau Bara Harum - Indonesia
- ASAPP Information Group - India
- ICICI Bank Limited - India
- Georgia Ports Authority, United States
- Kaltim Prima Coal - Indonesia
- LBH Netherlands Bv - Netherlands
- Meenaskhi Energy Private Limited - India
- Medco Energi Mining Internasional
- Goldman Sachs - Singapore
- Sojitz Corporation - Japan
- Global Business Power Corporation, Philippines
- Samtan Co., Ltd - South Korea
- Maheswari Brothers Coal Limited - India
- Eastern Coal Council - USA
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kobexindo Tractors - Indoneisa
- Grasim Industreis Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- PetroVietnam Power Coal Import and Supply Company
- Malabar Cements Ltd - India
- Africa Commodities Group - South Africa
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Coalindo Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
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