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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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Friday, 04 December 09
CHINA'S COAL IMPORTS PREDICTED TO DECLINE IN 2010
China's eye-catching coal import figure s are unlikely to extend into 2010 given the predicted narrow-down of the coal price spread between the hom ...
Friday, 04 December 09
SUBHASH PROJECTS BEGINS MINING AT INDONESIAN COAL BLOCK
Kolkata-based infrastructure company Subhash Projects and Marketing (SPML) has begun mining at its coal block in Indonesia and will begin despatchin ...
Friday, 04 December 09
DRY BULK MARKET IS ON THE RISE AGAIN
Proving rather resilient, compared to previous behaviors, the dry bulk market has been on a rebound mode once again, after a two-week fall, which su ...
Friday, 04 December 09
INDONESIA'S BUMI EYES MARKETING DEAL FOR BERAU COAL
Reuters reported that, Indonesian coal miner PT Bumi Resources Tbk said on Thursday it is in talks to be the exclusive marketing agent for coal prod ...
Friday, 04 December 09
KALIMANTAN GOLD AGREES TO SELL IBP COAL CONCESSION
COALspot.com ( Press Release): Kalimantan Gold Corporation Limited ("KLG" or the "Company"), which undertook drilling and had an ...
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- Attock Cement Pakistan Limited
- Alfred C Toepfer International GmbH - Germany
- Electricity Authority, New Zealand
- Bharathi Cement Corporation - India
- Metalloyd Limited - United Kingdom
- European Bulk Services B.V. - Netherlands
- Ceylon Electricity Board - Sri Lanka
- India Bulls Power Limited - India
- Star Paper Mills Limited - India
- AsiaOL BioFuels Corp., Philippines
- Jindal Steel & Power Ltd - India
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- The University of Queensland
- Gujarat Sidhee Cement - India
- Barasentosa Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Pendopo Energi Batubara - Indonesia
- Larsen & Toubro Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Wilmar Investment Holdings
- Goldman Sachs - Singapore
- Tamil Nadu electricity Board
- ICICI Bank Limited - India
- Indonesian Coal Mining Association
- Ministry of Mines - Canada
- Billiton Holdings Pty Ltd - Australia
- Chamber of Mines of South Africa
- Samtan Co., Ltd - South Korea
- Uttam Galva Steels Limited - India
- Iligan Light & Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Indo Tambangraya Megah - Indonesia
- Independent Power Producers Association of India
- White Energy Company Limited
- SN Aboitiz Power Inc, Philippines
- Sical Logistics Limited - India
- Orica Mining Services - Indonesia
- Petron Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Medco Energi Mining Internasional
- GVK Power & Infra Limited - India
- Vedanta Resources Plc - India
- Semirara Mining and Power Corporation, Philippines
- Merrill Lynch Commodities Europe
- Thiess Contractors Indonesia
- Electricity Generating Authority of Thailand
- Neyveli Lignite Corporation Ltd, - India
- Directorate General of MIneral and Coal - Indonesia
- Siam City Cement PLC, Thailand
- Makarim & Taira - Indonesia
- Edison Trading Spa - Italy
- CIMB Investment Bank - Malaysia
- Timah Investasi Mineral - Indoneisa
- OPG Power Generation Pvt Ltd - India
- Mintek Dendrill Indonesia
- Coastal Gujarat Power Limited - India
- CNBM International Corporation - China
- Mercator Lines Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Indian Energy Exchange, India
- Georgia Ports Authority, United States
- Simpson Spence & Young - Indonesia
- Power Finance Corporation Ltd., India
- Oldendorff Carriers - Singapore
- Kaltim Prima Coal - Indonesia
- PTC India Limited - India
- Vizag Seaport Private Limited - India
- Orica Australia Pty. Ltd.
- Sindya Power Generating Company Private Ltd
- Anglo American - United Kingdom
- The Treasury - Australian Government
- Global Business Power Corporation, Philippines
- PNOC Exploration Corporation - Philippines
- Bulk Trading Sa - Switzerland
- Riau Bara Harum - Indonesia
- Bhushan Steel Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- PowerSource Philippines DevCo
- Eastern Energy - Thailand
- Aboitiz Power Corporation - Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Latin American Coal - Colombia
- Romanian Commodities Exchange
- Trasteel International SA, Italy
- San Jose City I Power Corp, Philippines
- McConnell Dowell - Australia
- Aditya Birla Group - India
- Bukit Makmur.PT - Indonesia
- Ministry of Finance - Indonesia
- Australian Coal Association
- Semirara Mining Corp, Philippines
- Sarangani Energy Corporation, Philippines
- Minerals Council of Australia
- Cigading International Bulk Terminal - Indonesia
- Interocean Group of Companies - India
- Leighton Contractors Pty Ltd - Australia
- Ministry of Transport, Egypt
- Videocon Industries ltd - India
- Economic Council, Georgia
- Australian Commodity Traders Exchange
- Standard Chartered Bank - UAE
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Siam City Cement - Thailand
- Maheswari Brothers Coal Limited - India
- Cement Manufacturers Association - India
- LBH Netherlands Bv - Netherlands
- Karaikal Port Pvt Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Carbofer General Trading SA - India
- GN Power Mariveles Coal Plant, Philippines
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Port Waratah Coal Services - Australia
- Grasim Industreis Ltd - India
- Antam Resourcindo - Indonesia
- Xindia Steels Limited - India
- Mjunction Services Limited - India
- Sree Jayajothi Cements Limited - India
- Banpu Public Company Limited - Thailand
- Bayan Resources Tbk. - Indonesia
- Straits Asia Resources Limited - Singapore
- Miang Besar Coal Terminal - Indonesia
- Planning Commission, India
- Kohat Cement Company Ltd. - Pakistan
- Krishnapatnam Port Company Ltd. - India
- Malabar Cements Ltd - India
- Globalindo Alam Lestari - Indonesia
- Energy Link Ltd, New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Indogreen Group - Indonesia
- Lanco Infratech Ltd - India
- Global Green Power PLC Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Tata Chemicals Ltd - India
- Essar Steel Hazira Ltd - India
- Kumho Petrochemical, South Korea
- TNB Fuel Sdn Bhd - Malaysia
- Central Electricity Authority - India
- Singapore Mercantile Exchange
- GAC Shipping (India) Pvt Ltd
- Karbindo Abesyapradhi - Indoneisa
- Rashtriya Ispat Nigam Limited - India
- Ambuja Cements Ltd - India
- Commonwealth Bank - Australia
- Marubeni Corporation - India
- Kapuas Tunggal Persada - Indonesia
- Salva Resources Pvt Ltd - India
- Bangladesh Power Developement Board
- Jorong Barutama Greston.PT - Indonesia
- MS Steel International - UAE
- Maharashtra Electricity Regulatory Commission - India
- Heidelberg Cement - Germany
- Thai Mozambique Logistica
- Chettinad Cement Corporation Ltd - India
- Bukit Baiduri Energy - Indonesia
- Posco Energy - South Korea
- Parry Sugars Refinery, India
- Indian Oil Corporation Limited
- Kartika Selabumi Mining - Indonesia
- Sakthi Sugars Limited - India
- Ind-Barath Power Infra Limited - India
- Parliament of New Zealand
- Wood Mackenzie - Singapore
- Binh Thuan Hamico - Vietnam
- Formosa Plastics Group - Taiwan
- Kobexindo Tractors - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- ASAPP Information Group - India
- Therma Luzon, Inc, Philippines
- Dalmia Cement Bharat India
- Bhatia International Limited - India
- Mercuria Energy - Indonesia
- Price Waterhouse Coopers - Russia
- TeaM Sual Corporation - Philippines
- Asmin Koalindo Tuhup - Indonesia
- New Zealand Coal & Carbon
- IEA Clean Coal Centre - UK
- Africa Commodities Group - South Africa
- Coalindo Energy - Indonesia
- Directorate Of Revenue Intelligence - India
- Agrawal Coal Company - India
- GMR Energy Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Baramulti Group, Indonesia
- SMC Global Power, Philippines
- London Commodity Brokers - England
- Sojitz Corporation - Japan
- Sinarmas Energy and Mining - Indonesia
- Indika Energy - Indonesia
- Manunggal Multi Energi - Indonesia
- Rio Tinto Coal - Australia
- Deloitte Consulting - India
- Kideco Jaya Agung - Indonesia
- Eastern Coal Council - USA
- Altura Mining Limited, Indonesia
- Intertek Mineral Services - Indonesia
- Meralco Power Generation, Philippines
- The State Trading Corporation of India Ltd
- South Luzon Thermal Energy Corporation
- Bank of Tokyo Mitsubishi UFJ Ltd
- Gujarat Electricity Regulatory Commission - India
- PetroVietnam Power Coal Import and Supply Company
- Coal and Oil Company - UAE
- IHS Mccloskey Coal Group - USA
- Madhucon Powers Ltd - India
- Bhoruka Overseas - Indonesia
- Borneo Indobara - Indonesia
- Energy Development Corp, Philippines
- Holcim Trading Pte Ltd - Singapore
- SMG Consultants - Indonesia
- International Coal Ventures Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Jaiprakash Power Ventures ltd
- Global Coal Blending Company Limited - Australia
- Central Java Power - Indonesia
- VISA Power Limited - India
- Kepco SPC Power Corporation, Philippines
- Renaissance Capital - South Africa
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