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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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Tuesday, 08 December 09
HIGH GLOBAL COAL PRICES HIT POWER PROJECTS
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Monday, 07 December 09
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COALspot.com (India): Vedanta Resources plc is a London stock exchange listed FTSE 100 diversified metals and mining major with revenues in excess o ...
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- Cigading International Bulk Terminal - Indonesia
- Kideco Jaya Agung - Indonesia
- India Bulls Power Limited - India
- Straits Asia Resources Limited - Singapore
- Uttam Galva Steels Limited - India
- Tamil Nadu electricity Board
- Ministry of Mines - Canada
- Singapore Mercantile Exchange
- Georgia Ports Authority, United States
- Essar Steel Hazira Ltd - India
- Star Paper Mills Limited - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Jaiprakash Power Ventures ltd
- Toyota Tsusho Corporation, Japan
- Economic Council, Georgia
- Therma Luzon, Inc, Philippines
- Electricity Authority, New Zealand
- Petron Corporation, Philippines
- Grasim Industreis Ltd - India
- Parliament of New Zealand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Makarim & Taira - Indonesia
- MS Steel International - UAE
- Marubeni Corporation - India
- GVK Power & Infra Limited - India
- Australian Commodity Traders Exchange
- Medco Energi Mining Internasional
- Samtan Co., Ltd - South Korea
- Baramulti Group, Indonesia
- Indian Oil Corporation Limited
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- SN Aboitiz Power Inc, Philippines
- The State Trading Corporation of India Ltd
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- OPG Power Generation Pvt Ltd - India
- Africa Commodities Group - South Africa
- Merrill Lynch Commodities Europe
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- ASAPP Information Group - India
- SMG Consultants - Indonesia
- Malabar Cements Ltd - India
- Dalmia Cement Bharat India
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- Kepco SPC Power Corporation, Philippines
- Heidelberg Cement - Germany
- Romanian Commodities Exchange
- Salva Resources Pvt Ltd - India
- Sical Logistics Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Deloitte Consulting - India
- Bahari Cakrawala Sebuku - Indonesia
- Mercuria Energy - Indonesia
- Metalloyd Limited - United Kingdom
- Mintek Dendrill Indonesia
- Cement Manufacturers Association - India
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- Indonesian Coal Mining Association
- Vedanta Resources Plc - India
- LBH Netherlands Bv - Netherlands
- GAC Shipping (India) Pvt Ltd
- Savvy Resources Ltd - HongKong
- Rashtriya Ispat Nigam Limited - India
- Ind-Barath Power Infra Limited - India
- GMR Energy Limited - India
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- Offshore Bulk Terminal Pte Ltd, Singapore
- San Jose City I Power Corp, Philippines
- Binh Thuan Hamico - Vietnam
- TeaM Sual Corporation - Philippines
- Anglo American - United Kingdom
- Bharathi Cement Corporation - India
- Indo Tambangraya Megah - Indonesia
- Videocon Industries ltd - India
- Coalindo Energy - Indonesia
- Kartika Selabumi Mining - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Standard Chartered Bank - UAE
- Tata Chemicals Ltd - India
- Gujarat Sidhee Cement - India
- Eastern Energy - Thailand
- Edison Trading Spa - Italy
- Australian Coal Association
- Meenaskhi Energy Private Limited - India
- Maheswari Brothers Coal Limited - India
- Coal and Oil Company - UAE
- Ministry of Finance - Indonesia
- Madhucon Powers Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- The Treasury - Australian Government
- Electricity Generating Authority of Thailand
- SMC Global Power, Philippines
- Planning Commission, India
- Independent Power Producers Association of India
- Directorate General of MIneral and Coal - Indonesia
- Goldman Sachs - Singapore
- Formosa Plastics Group - Taiwan
- Bulk Trading Sa - Switzerland
- Orica Australia Pty. Ltd.
- Billiton Holdings Pty Ltd - Australia
- Ministry of Transport, Egypt
- Sree Jayajothi Cements Limited - India
- Energy Development Corp, Philippines
- Global Green Power PLC Corporation, Philippines
- London Commodity Brokers - England
- IEA Clean Coal Centre - UK
- Antam Resourcindo - Indonesia
- Larsen & Toubro Limited - India
- Power Finance Corporation Ltd., India
- IHS Mccloskey Coal Group - USA
- Timah Investasi Mineral - Indoneisa
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- Asmin Koalindo Tuhup - Indonesia
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- Asia Pacific Energy Resources Ventures Inc, Philippines
- PNOC Exploration Corporation - Philippines
- South Luzon Thermal Energy Corporation
- Orica Mining Services - Indonesia
- Carbofer General Trading SA - India
- Directorate Of Revenue Intelligence - India
- Thiess Contractors Indonesia
- GN Power Mariveles Coal Plant, Philippines
- The University of Queensland
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- Alfred C Toepfer International GmbH - Germany
- Bukit Baiduri Energy - Indonesia
- Indian Energy Exchange, India
- Meralco Power Generation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- European Bulk Services B.V. - Netherlands
- Bangladesh Power Developement Board
- Latin American Coal - Colombia
- Kumho Petrochemical, South Korea
- Sakthi Sugars Limited - India
- Intertek Mineral Services - Indonesia
- Trasteel International SA, Italy
- Semirara Mining and Power Corporation, Philippines
- Interocean Group of Companies - India
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- Holcim Trading Pte Ltd - Singapore
- Posco Energy - South Korea
- ICICI Bank Limited - India
- Rio Tinto Coal - Australia
- Mercator Lines Limited - India
- Chettinad Cement Corporation Ltd - India
- Wilmar Investment Holdings
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement - Thailand
- Oldendorff Carriers - Singapore
- Wood Mackenzie - Singapore
- Renaissance Capital - South Africa
- Ambuja Cements Ltd - India
- Attock Cement Pakistan Limited
- Sindya Power Generating Company Private Ltd
- Maharashtra Electricity Regulatory Commission - India
- Bhoruka Overseas - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Indika Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Commonwealth Bank - Australia
- Altura Mining Limited, Indonesia
- Vizag Seaport Private Limited - India
- Manunggal Multi Energi - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- Agrawal Coal Company - India
- Xindia Steels Limited - India
- Bukit Asam (Persero) Tbk - Indonesia
- Borneo Indobara - Indonesia
- CNBM International Corporation - China
- Mjunction Services Limited - India
- CIMB Investment Bank - Malaysia
- Globalindo Alam Lestari - Indonesia
- Sarangani Energy Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- New Zealand Coal & Carbon
- Eastern Coal Council - USA
- Aboitiz Power Corporation - Philippines
- Minerals Council of Australia
- Leighton Contractors Pty Ltd - Australia
- Central Electricity Authority - India
- Krishnapatnam Port Company Ltd. - India
- International Coal Ventures Pvt Ltd - India
- White Energy Company Limited
- Parry Sugars Refinery, India
- Chamber of Mines of South Africa
- Thai Mozambique Logistica
- Global Coal Blending Company Limited - Australia
- Gujarat Mineral Development Corp Ltd - India
- Ceylon Electricity Board - Sri Lanka
- Miang Besar Coal Terminal - Indonesia
- Port Waratah Coal Services - Australia
- Energy Link Ltd, New Zealand
- Banpu Public Company Limited - Thailand
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indogreen Group - Indonesia
- Price Waterhouse Coopers - Russia
- Aditya Birla Group - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Jindal Steel & Power Ltd - India
- PTC India Limited - India
- Barasentosa Lestari - Indonesia
- Pendopo Energi Batubara - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- PowerSource Philippines DevCo
- McConnell Dowell - Australia
- Simpson Spence & Young - Indonesia
- Kapuas Tunggal Persada - Indonesia
- Global Business Power Corporation, Philippines
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- VISA Power Limited - India
- Sojitz Corporation - Japan
- Bayan Resources Tbk. - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Riau Bara Harum - Indonesia
- Neyveli Lignite Corporation Ltd, - India
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