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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
JSW ENERGY TO BUY OUT PARENT FIRM'S COAL BLOCK
JSW Energy plans to buy the stake held by JSW Steel in a thermal coal block in Mozambique in an attempt to become an integrated energy company with ...
Thursday, 03 December 09
JAPAN 2010 COAL IMPORTS SEEN FLAT, INDIA'S ROBUST - INDUSTRY
* Japan's demand seen steady in 2010 at 110 mln tonnes
* India's demand seen as robust, at 70 mln tonnes
Reuters reported that, Thermal coal i ...
Thursday, 03 December 09
INDONESIA MAY ALLOW COAL SALES BELOW GOVT PRICE
Reuters reported that, Indonesia is considering giving producers some flexibility to sell coal below the government's monthly benchmark price to co ...
Thursday, 03 December 09
INDONESIA SEEKS TO INCREASE COAL SHIPMENTS TO INDIA, CHINA
Bloomberg reproted that, Indonesia, Asia’s biggest coal exporter, seeks to increase shipments to India and China as the economies improve and ...
Thursday, 03 December 09
COAL INDIA IPO LIKELY TO HIT MARKETS BY NOVEMBER 2010
Soon investors will get to own a slice of India's largest coal mining company. Coal India its initial public offering will hit markets in November ...
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- New Zealand Coal & Carbon
- Sakthi Sugars Limited - India
- Kepco SPC Power Corporation, Philippines
- Manunggal Multi Energi - Indonesia
- Port Waratah Coal Services - Australia
- Straits Asia Resources Limited - Singapore
- Mercator Lines Limited - India
- Vijayanagar Sugar Pvt Ltd - India
- SN Aboitiz Power Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Karbindo Abesyapradhi - Indoneisa
- Heidelberg Cement - Germany
- Malabar Cements Ltd - India
- Iligan Light & Power Inc, Philippines
- Cement Manufacturers Association - India
- Price Waterhouse Coopers - Russia
- Parliament of New Zealand
- GVK Power & Infra Limited - India
- Indonesian Coal Mining Association
- Vizag Seaport Private Limited - India
- VISA Power Limited - India
- Thiess Contractors Indonesia
- Jaiprakash Power Ventures ltd
- Singapore Mercantile Exchange
- Indogreen Group - Indonesia
- Sree Jayajothi Cements Limited - India
- Central Electricity Authority - India
- Globalindo Alam Lestari - Indonesia
- Latin American Coal - Colombia
- Ceylon Electricity Board - Sri Lanka
- SMC Global Power, Philippines
- Barasentosa Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Semirara Mining Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Kobexindo Tractors - Indoneisa
- Agrawal Coal Company - India
- CIMB Investment Bank - Malaysia
- Bangladesh Power Developement Board
- SMG Consultants - Indonesia
- Indika Energy - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Sarangani Energy Corporation, Philippines
- Global Business Power Corporation, Philippines
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- GAC Shipping (India) Pvt Ltd
- Pendopo Energi Batubara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Chamber of Mines of South Africa
- Leighton Contractors Pty Ltd - Australia
- Romanian Commodities Exchange
- Eastern Coal Council - USA
- India Bulls Power Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Global Green Power PLC Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- Mjunction Services Limited - India
- Commonwealth Bank - Australia
- Semirara Mining and Power Corporation, Philippines
- Attock Cement Pakistan Limited
- Standard Chartered Bank - UAE
- Banpu Public Company Limited - Thailand
- PowerSource Philippines DevCo
- Billiton Holdings Pty Ltd - Australia
- Renaissance Capital - South Africa
- Coastal Gujarat Power Limited - India
- PNOC Exploration Corporation - Philippines
- ICICI Bank Limited - India
- Aditya Birla Group - India
- Madhucon Powers Ltd - India
- Deloitte Consulting - India
- Economic Council, Georgia
- Bukit Makmur.PT - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Larsen & Toubro Limited - India
- Holcim Trading Pte Ltd - Singapore
- Gujarat Sidhee Cement - India
- Uttam Galva Steels Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Orica Australia Pty. Ltd.
- South Luzon Thermal Energy Corporation
- Sojitz Corporation - Japan
- Star Paper Mills Limited - India
- White Energy Company Limited
- PTC India Limited - India
- ASAPP Information Group - India
- Bulk Trading Sa - Switzerland
- Central Java Power - Indonesia
- Australian Coal Association
- Kaltim Prima Coal - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Thai Mozambique Logistica
- Carbofer General Trading SA - India
- Formosa Plastics Group - Taiwan
- Medco Energi Mining Internasional
- Bahari Cakrawala Sebuku - Indonesia
- Independent Power Producers Association of India
- Kartika Selabumi Mining - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Ambuja Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Offshore Bulk Terminal Pte Ltd, Singapore
- Jindal Steel & Power Ltd - India
- European Bulk Services B.V. - Netherlands
- Essar Steel Hazira Ltd - India
- Miang Besar Coal Terminal - Indonesia
- Edison Trading Spa - Italy
- Riau Bara Harum - Indonesia
- Parry Sugars Refinery, India
- Oldendorff Carriers - Singapore
- Global Coal Blending Company Limited - Australia
- Antam Resourcindo - Indonesia
- Indo Tambangraya Megah - Indonesia
- TeaM Sual Corporation - Philippines
- The State Trading Corporation of India Ltd
- McConnell Dowell - Australia
- Simpson Spence & Young - Indonesia
- Binh Thuan Hamico - Vietnam
- Bhatia International Limited - India
- Makarim & Taira - Indonesia
- Grasim Industreis Ltd - India
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Xindia Steels Limited - India
- Electricity Generating Authority of Thailand
- Karaikal Port Pvt Ltd - India
- Salva Resources Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Rio Tinto Coal - Australia
- Gujarat Mineral Development Corp Ltd - India
- London Commodity Brokers - England
- GMR Energy Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Dalmia Cement Bharat India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Energy Link Ltd, New Zealand
- Lanco Infratech Ltd - India
- Tamil Nadu electricity Board
- Australian Commodity Traders Exchange
- Ministry of Mines - Canada
- Therma Luzon, Inc, Philippines
- Ministry of Finance - Indonesia
- Planning Commission, India
- Electricity Authority, New Zealand
- Bharathi Cement Corporation - India
- The University of Queensland
- Wilmar Investment Holdings
- Bhoruka Overseas - Indonesia
- Samtan Co., Ltd - South Korea
- Mintek Dendrill Indonesia
- Coal and Oil Company - UAE
- Metalloyd Limited - United Kingdom
- Jorong Barutama Greston.PT - Indonesia
- Goldman Sachs - Singapore
- Meenaskhi Energy Private Limited - India
- Merrill Lynch Commodities Europe
- Mercuria Energy - Indonesia
- Indian Oil Corporation Limited
- MS Steel International - UAE
- Coalindo Energy - Indonesia
- OPG Power Generation Pvt Ltd - India
- Energy Development Corp, Philippines
- Minerals Council of Australia
- Indian Energy Exchange, India
- Trasteel International SA, Italy
- The Treasury - Australian Government
- Intertek Mineral Services - Indonesia
- San Jose City I Power Corp, Philippines
- International Coal Ventures Pvt Ltd - India
- Videocon Industries ltd - India
- Wood Mackenzie - Singapore
- Ind-Barath Power Infra Limited - India
- Africa Commodities Group - South Africa
- Eastern Energy - Thailand
- Altura Mining Limited, Indonesia
- Kideco Jaya Agung - Indonesia
- Sical Logistics Limited - India
- LBH Netherlands Bv - Netherlands
- Georgia Ports Authority, United States
- CNBM International Corporation - China
- Posco Energy - South Korea
- Ministry of Transport, Egypt
- Marubeni Corporation - India
- Chettinad Cement Corporation Ltd - India
- Bhushan Steel Limited - India
- Borneo Indobara - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Timah Investasi Mineral - Indoneisa
- Siam City Cement - Thailand
- Maheswari Brothers Coal Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- Anglo American - United Kingdom
- Baramulti Group, Indonesia
- Orica Mining Services - Indonesia
- Directorate Of Revenue Intelligence - India
- Power Finance Corporation Ltd., India
- Petron Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Sindya Power Generating Company Private Ltd
- IHS Mccloskey Coal Group - USA
- Siam City Cement PLC, Thailand
- Kapuas Tunggal Persada - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Kumho Petrochemical, South Korea
- Bayan Resources Tbk. - Indonesia
- Toyota Tsusho Corporation, Japan
- Aboitiz Power Corporation - Philippines
- IEA Clean Coal Centre - UK
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vedanta Resources Plc - India
- Meralco Power Generation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Rashtriya Ispat Nigam Limited - India
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