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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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Thursday, 03 December 09
PROLONGED COAL MARGIN SQUEEZE AHEAD - WESCOAL
Mining Weekly reported that, Coal junior Wescoal foresees a continued margin squeeze ahead. The JSE AltX-listed company's gross margin was reduced ...
Tuesday, 01 December 09
COAL DEMAND REBOUNDING FROM DOWNTURN - U.S. MINING EXECS
The coal industry is slowly rebounding from last year's recession with demand and prices inching upward, although inventories at U.S. power ...
Tuesday, 01 December 09
INDONESIA COAL OUTPUT SEEN LIFTED BY CHINA, INDIA
Reuters reported that, Indonesia's coal output is expected to grow by as much as 12 percent in 2010, boosted by demand from power hungry China and ...
Monday, 30 November 09
NTPC SCOUTS FOR MORE COAL BLOCKS IN INDONESIA
State-run National Thermal Power Corporation (NTPC) today said it has identified three more coal blocks in Indonesia for acquisition.
"We ha ...
Monday, 30 November 09
THE FUTURES FOR THREE YEARS (2010-2012) WAS SOFT COMPARED TO LAST WEEK - VISTAAR SINGAPORE
COALspot.com (Singapore): BDI continued to drop this week and touched below 4,000 mark level. The drop in BDI was almost 12 pct and closed at 3,975 ...
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- Sojitz Corporation - Japan
- PowerSource Philippines DevCo
- Medco Energi Mining Internasional
- TeaM Sual Corporation - Philippines
- Energy Link Ltd, New Zealand
- Maheswari Brothers Coal Limited - India
- Leighton Contractors Pty Ltd - Australia
- Parliament of New Zealand
- Madhucon Powers Ltd - India
- Bayan Resources Tbk. - Indonesia
- Wilmar Investment Holdings
- Wood Mackenzie - Singapore
- Eastern Energy - Thailand
- Binh Thuan Hamico - Vietnam
- GN Power Mariveles Coal Plant, Philippines
- Semirara Mining Corp, Philippines
- Agrawal Coal Company - India
- Anglo American - United Kingdom
- Renaissance Capital - South Africa
- Formosa Plastics Group - Taiwan
- Meralco Power Generation, Philippines
- Makarim & Taira - Indonesia
- Pendopo Energi Batubara - Indonesia
- Georgia Ports Authority, United States
- Global Coal Blending Company Limited - Australia
- LBH Netherlands Bv - Netherlands
- GVK Power & Infra Limited - India
- Central Electricity Authority - India
- Mjunction Services Limited - India
- Sarangani Energy Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Electricity Generating Authority of Thailand
- Siam City Cement PLC, Thailand
- Singapore Mercantile Exchange
- PNOC Exploration Corporation - Philippines
- Carbofer General Trading SA - India
- San Jose City I Power Corp, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Planning Commission, India
- Grasim Industreis Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Kapuas Tunggal Persada - Indonesia
- Posco Energy - South Korea
- Directorate General of MIneral and Coal - Indonesia
- Vizag Seaport Private Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Power Finance Corporation Ltd., India
- Antam Resourcindo - Indonesia
- Australian Commodity Traders Exchange
- Parry Sugars Refinery, India
- Interocean Group of Companies - India
- Price Waterhouse Coopers - Russia
- European Bulk Services B.V. - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- ASAPP Information Group - India
- Minerals Council of Australia
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- GAC Shipping (India) Pvt Ltd
- Bukit Baiduri Energy - Indonesia
- Heidelberg Cement - Germany
- Merrill Lynch Commodities Europe
- Semirara Mining and Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- International Coal Ventures Pvt Ltd - India
- ICICI Bank Limited - India
- CNBM International Corporation - China
- Indonesian Coal Mining Association
- New Zealand Coal & Carbon
- Metalloyd Limited - United Kingdom
- Africa Commodities Group - South Africa
- Ambuja Cements Ltd - India
- Malabar Cements Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Indogreen Group - Indonesia
- GMR Energy Limited - India
- Holcim Trading Pte Ltd - Singapore
- Australian Coal Association
- Kartika Selabumi Mining - Indonesia
- Standard Chartered Bank - UAE
- Directorate Of Revenue Intelligence - India
- Essar Steel Hazira Ltd - India
- Toyota Tsusho Corporation, Japan
- Neyveli Lignite Corporation Ltd, - India
- Oldendorff Carriers - Singapore
- Ministry of Transport, Egypt
- The Treasury - Australian Government
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Sakthi Sugars Limited - India
- Timah Investasi Mineral - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Trasteel International SA, Italy
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Siam City Cement - Thailand
- Goldman Sachs - Singapore
- Sical Logistics Limited - India
- Baramulti Group, Indonesia
- IEA Clean Coal Centre - UK
- Bukit Makmur.PT - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Jaiprakash Power Ventures ltd
- Savvy Resources Ltd - HongKong
- Ministry of Finance - Indonesia
- Tamil Nadu electricity Board
- Lanco Infratech Ltd - India
- Vijayanagar Sugar Pvt Ltd - India
- PetroVietnam Power Coal Import and Supply Company
- Altura Mining Limited, Indonesia
- Ceylon Electricity Board - Sri Lanka
- Straits Asia Resources Limited - Singapore
- Uttam Galva Steels Limited - India
- South Luzon Thermal Energy Corporation
- Offshore Bulk Terminal Pte Ltd, Singapore
- Larsen & Toubro Limited - India
- Chettinad Cement Corporation Ltd - India
- Coastal Gujarat Power Limited - India
- White Energy Company Limited
- Bharathi Cement Corporation - India
- Jindal Steel & Power Ltd - India
- Ministry of Mines - Canada
- Gujarat Sidhee Cement - India
- Orica Australia Pty. Ltd.
- CIMB Investment Bank - Malaysia
- McConnell Dowell - Australia
- Aditya Birla Group - India
- Mercator Lines Limited - India
- The State Trading Corporation of India Ltd
- Billiton Holdings Pty Ltd - Australia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Ind-Barath Power Infra Limited - India
- The University of Queensland
- Samtan Co., Ltd - South Korea
- Energy Development Corp, Philippines
- Marubeni Corporation - India
- Eastern Coal Council - USA
- Chamber of Mines of South Africa
- Mercuria Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Aboitiz Power Corporation - Philippines
- Romanian Commodities Exchange
- Rio Tinto Coal - Australia
- Krishnapatnam Port Company Ltd. - India
- Thiess Contractors Indonesia
- Gujarat Mineral Development Corp Ltd - India
- Edison Trading Spa - Italy
- Coalindo Energy - Indonesia
- Therma Luzon, Inc, Philippines
- Vedanta Resources Plc - India
- Attock Cement Pakistan Limited
- Borneo Indobara - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Tata Chemicals Ltd - India
- IHS Mccloskey Coal Group - USA
- Asmin Koalindo Tuhup - Indonesia
- Xindia Steels Limited - India
- Economic Council, Georgia
- Miang Besar Coal Terminal - Indonesia
- Bhatia International Limited - India
- Indian Energy Exchange, India
- Star Paper Mills Limited - India
- SMC Global Power, Philippines
- Salva Resources Pvt Ltd - India
- Port Waratah Coal Services - Australia
- Rashtriya Ispat Nigam Limited - India
- Latin American Coal - Colombia
- India Bulls Power Limited - India
- Orica Mining Services - Indonesia
- SN Aboitiz Power Inc, Philippines
- Videocon Industries ltd - India
- Riau Bara Harum - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Barasentosa Lestari - Indonesia
- Coal and Oil Company - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Deloitte Consulting - India
- Bhushan Steel Limited - India
- Bulk Trading Sa - Switzerland
- Globalindo Alam Lestari - Indonesia
- Sree Jayajothi Cements Limited - India
- Kumho Petrochemical, South Korea
- Independent Power Producers Association of India
- Petron Corporation, Philippines
- Simpson Spence & Young - Indonesia
- Thai Mozambique Logistica
- Bangladesh Power Developement Board
- Cement Manufacturers Association - India
- Mintek Dendrill Indonesia
- Central Java Power - Indonesia
- Commonwealth Bank - Australia
- Meenaskhi Energy Private Limited - India
- Sindya Power Generating Company Private Ltd
- London Commodity Brokers - England
- VISA Power Limited - India
- SMG Consultants - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- Dalmia Cement Bharat India
- MS Steel International - UAE
- Iligan Light & Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Indian Oil Corporation Limited
- Karaikal Port Pvt Ltd - India
- Manunggal Multi Energi - Indonesia
- Kaltim Prima Coal - Indonesia
- Bhoruka Overseas - Indonesia
- Indika Energy - Indonesia
- Electricity Authority, New Zealand
- PTC India Limited - India
- Kepco SPC Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Alfred C Toepfer International GmbH - Germany
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