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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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Monday, 07 December 09
CHINA COKING COAL PRICE MAY RISE 14% ON DEFICIT, CITIGROUP SAYS
Coking coal prices in China, the world’s biggest steel producer, may rise 14 percent next year because of a supply deficit, Citigroup Inc. sai ...
Monday, 07 December 09
JSW STEEL TO SELL MOZAMBIQUE COAL MINE FOR RS 300 CRORE
JSW Steel may sell its coal mine in Mozambique to sister company JSW Energy as the mine has become commercially unviable for the steel producer, a t ...
Monday, 07 December 09
BLACK RIDGE MINING ENTERS AGREEMENT WITH INDONESIAN COAL PRODUCER
Australian-listed Black Ridge Mining has entered into an exclusive dealing and non-circumvention agreement with Indonesian coal producer PT. Inmas A ...
Sunday, 06 December 09
THE ECI / CHINA (S7) ROUTE SOFTENED AND WAS AT US$ 25,275 PER DAY - VISTAAR
COALspot.com (Singapore): "The market was bit soft in the beginning of the week, however towards mid week that market started to pick up and th ...
Sunday, 06 December 09
NEW MANGALORE PORT GETS UPCL'S FIRST COAL PARCEL FROM INDONESIA
The Lanco Group-promoted Udupi Power Corporation Ltd (UPCL) has received the first parcel of imported coal from Indonesia at the New Mangalore Port. ...
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- Bharathi Cement Corporation - India
- Merrill Lynch Commodities Europe
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- Romanian Commodities Exchange
- Karbindo Abesyapradhi - Indoneisa
- Kideco Jaya Agung - Indonesia
- Latin American Coal - Colombia
- VISA Power Limited - India
- TNB Fuel Sdn Bhd - Malaysia
- Kobexindo Tractors - Indoneisa
- India Bulls Power Limited - India
- Planning Commission, India
- GN Power Mariveles Coal Plant, Philippines
- Economic Council, Georgia
- Pendopo Energi Batubara - Indonesia
- Grasim Industreis Ltd - India
- Attock Cement Pakistan Limited
- Bukit Baiduri Energy - Indonesia
- Australian Coal Association
- Chamber of Mines of South Africa
- South Luzon Thermal Energy Corporation
- Straits Asia Resources Limited - Singapore
- Electricity Authority, New Zealand
- Ministry of Mines - Canada
- Star Paper Mills Limited - India
- Mercator Lines Limited - India
- Barasentosa Lestari - Indonesia
- Chettinad Cement Corporation Ltd - India
- Bangladesh Power Developement Board
- Edison Trading Spa - Italy
- Bank of Tokyo Mitsubishi UFJ Ltd
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- Sinarmas Energy and Mining - Indonesia
- Sakthi Sugars Limited - India
- Standard Chartered Bank - UAE
- Kumho Petrochemical, South Korea
- Posco Energy - South Korea
- Bulk Trading Sa - Switzerland
- Port Waratah Coal Services - Australia
- Madhucon Powers Ltd - India
- Lanco Infratech Ltd - India
- Manunggal Multi Energi - Indonesia
- Sojitz Corporation - Japan
- Formosa Plastics Group - Taiwan
- Intertek Mineral Services - Indonesia
- Rashtriya Ispat Nigam Limited - India
- GMR Energy Limited - India
- Indonesian Coal Mining Association
- Mintek Dendrill Indonesia
- Krishnapatnam Port Company Ltd. - India
- ICICI Bank Limited - India
- McConnell Dowell - Australia
- Gujarat Sidhee Cement - India
- Ceylon Electricity Board - Sri Lanka
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ambuja Cements Ltd - India
- LBH Netherlands Bv - Netherlands
- Siam City Cement PLC, Thailand
- Maharashtra Electricity Regulatory Commission - India
- CNBM International Corporation - China
- PTC India Limited - India
- Central Java Power - Indonesia
- Makarim & Taira - Indonesia
- Marubeni Corporation - India
- Riau Bara Harum - Indonesia
- IHS Mccloskey Coal Group - USA
- Renaissance Capital - South Africa
- Simpson Spence & Young - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Sical Logistics Limited - India
- Billiton Holdings Pty Ltd - Australia
- Independent Power Producers Association of India
- Medco Energi Mining Internasional
- Sarangani Energy Corporation, Philippines
- Eastern Energy - Thailand
- Larsen & Toubro Limited - India
- Maheswari Brothers Coal Limited - India
- International Coal Ventures Pvt Ltd - India
- Price Waterhouse Coopers - Russia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bukit Asam (Persero) Tbk - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Semirara Mining and Power Corporation, Philippines
- MS Steel International - UAE
- Savvy Resources Ltd - HongKong
- Interocean Group of Companies - India
- Mjunction Services Limited - India
- Therma Luzon, Inc, Philippines
- Orica Australia Pty. Ltd.
- Jaiprakash Power Ventures ltd
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Coal Blending Company Limited - Australia
- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Central Electricity Authority - India
- Mercuria Energy - Indonesia
- Globalindo Alam Lestari - Indonesia
- Wood Mackenzie - Singapore
- Heidelberg Cement - Germany
- San Jose City I Power Corp, Philippines
- Georgia Ports Authority, United States
- Bayan Resources Tbk. - Indonesia
- Malabar Cements Ltd - India
- Kepco SPC Power Corporation, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Australian Commodity Traders Exchange
- Goldman Sachs - Singapore
- TeaM Sual Corporation - Philippines
- Deloitte Consulting - India
- European Bulk Services B.V. - Netherlands
- CIMB Investment Bank - Malaysia
- Jorong Barutama Greston.PT - Indonesia
- Thai Mozambique Logistica
- Samtan Co., Ltd - South Korea
- Binh Thuan Hamico - Vietnam
- Eastern Coal Council - USA
- Indika Energy - Indonesia
- Toyota Tsusho Corporation, Japan
- Trasteel International SA, Italy
- Pipit Mutiara Jaya. PT, Indonesia
- The University of Queensland
- Cement Manufacturers Association - India
- Gujarat Electricity Regulatory Commission - India
- Miang Besar Coal Terminal - Indonesia
- Indian Energy Exchange, India
- Bukit Makmur.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Semirara Mining Corp, Philippines
- GAC Shipping (India) Pvt Ltd
- Antam Resourcindo - Indonesia
- Bhoruka Overseas - Indonesia
- Indogreen Group - Indonesia
- Rio Tinto Coal - Australia
- Minerals Council of Australia
- Altura Mining Limited, Indonesia
- SMG Consultants - Indonesia
- Indian Oil Corporation Limited
- ASAPP Information Group - India
- Uttam Galva Steels Limited - India
- Sindya Power Generating Company Private Ltd
- Coastal Gujarat Power Limited - India
- Indo Tambangraya Megah - Indonesia
- Commonwealth Bank - Australia
- Thiess Contractors Indonesia
- Electricity Generating Authority of Thailand
- Meralco Power Generation, Philippines
- Holcim Trading Pte Ltd - Singapore
- Tamil Nadu electricity Board
- Carbofer General Trading SA - India
- Gujarat Mineral Development Corp Ltd - India
- Iligan Light & Power Inc, Philippines
- Power Finance Corporation Ltd., India
- Tata Chemicals Ltd - India
- Banpu Public Company Limited - Thailand
- PetroVietnam Power Coal Import and Supply Company
- Sree Jayajothi Cements Limited - India
- Salva Resources Pvt Ltd - India
- Global Green Power PLC Corporation, Philippines
- New Zealand Coal & Carbon
- Dalmia Cement Bharat India
- Kohat Cement Company Ltd. - Pakistan
- GVK Power & Infra Limited - India
- Baramulti Group, Indonesia
- Bhatia International Limited - India
- Africa Commodities Group - South Africa
- Karaikal Port Pvt Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Wilmar Investment Holdings
- Orica Mining Services - Indonesia
- Videocon Industries ltd - India
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- SMC Global Power, Philippines
- White Energy Company Limited
- Coalindo Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Coal and Oil Company - UAE
- Anglo American - United Kingdom
- Ministry of Finance - Indonesia
- Timah Investasi Mineral - Indoneisa
- Kartika Selabumi Mining - Indonesia
- PowerSource Philippines DevCo
- Meenaskhi Energy Private Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- Aboitiz Power Corporation - Philippines
- Ministry of Transport, Egypt
- London Commodity Brokers - England
- The State Trading Corporation of India Ltd
- IEA Clean Coal Centre - UK
- PNOC Exploration Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- OPG Power Generation Pvt Ltd - India
- Petron Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Borneo Indobara - Indonesia
- Jindal Steel & Power Ltd - India
- Agrawal Coal Company - India
- Energy Link Ltd, New Zealand
- Alfred C Toepfer International GmbH - Germany
- Kapuas Tunggal Persada - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Parliament of New Zealand
- Singapore Mercantile Exchange
- Kaltim Prima Coal - Indonesia
- Aditya Birla Group - India
- Vedanta Resources Plc - India
- Parry Sugars Refinery, India
- Oldendorff Carriers - Singapore
- The Treasury - Australian Government
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bhushan Steel Limited - India
- Energy Development Corp, Philippines
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Xindia Steels Limited - India
- Metalloyd Limited - United Kingdom
- Global Business Power Corporation, Philippines
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