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