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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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Wednesday, 25 November 09
NAPOCOR SCRAPS AWARD OF 715,000 TONS COAL
Top Philippine electricity producer National Power Corp. (Napocor) said on Wednesday it had cancelled plans to award 715,000 tons in coal supply con ...
Wednesday, 25 November 09
RISING FREIGHT RATES HIT COAL IMPORTERS
While state-owned NTPC’s 12.5 million tonne coal import order may have been aimed at plugging the shortage of coal at its thermal power plants ...
Wednesday, 25 November 09
CSN TO BUY RIVERSDALE STAKE TO BOOST COAL SUPPLIES
Cia. Siderurgica Nacional SA plans to buy 16.3 percent of Australian coal-exploration company Riversdale Mining Ltd. for about A$190.5 million ($175 ...
Tuesday, 24 November 09
ICRA DOWNGRADES TNPL`S RATING TO LAA
Credit rating agency, ICRA has revised the long term rating for the Rs 11.25 billion long-term fund-based bank facilities and Rs 1.5 billion non-con ...
Monday, 23 November 09
INDONESIA MINING RULE THREATENS INVESTMENT DRIVE
A new Indonesian mining rule, limiting contract work that can be outsourced and favouring local players, is shaping up as a new blow to plans ...
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- Georgia Ports Authority, United States
- Aditya Birla Group - India
- Orica Australia Pty. Ltd.
- Africa Commodities Group - South Africa
- Port Waratah Coal Services - Australia
- Cement Manufacturers Association - India
- Lanco Infratech Ltd - India
- GVK Power & Infra Limited - India
- McConnell Dowell - Australia
- Agrawal Coal Company - India
- GN Power Mariveles Coal Plant, Philippines
- Coal and Oil Company - UAE
- SMG Consultants - Indonesia
- Vedanta Resources Plc - India
- Deloitte Consulting - India
- Pendopo Energi Batubara - Indonesia
- Sree Jayajothi Cements Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Interocean Group of Companies - India
- Indian Oil Corporation Limited
- Australian Commodity Traders Exchange
- Metalloyd Limited - United Kingdom
- Eastern Energy - Thailand
- Borneo Indobara - Indonesia
- Iligan Light & Power Inc, Philippines
- TeaM Sual Corporation - Philippines
- Wilmar Investment Holdings
- Bayan Resources Tbk. - Indonesia
- Global Business Power Corporation, Philippines
- Maharashtra Electricity Regulatory Commission - India
- PowerSource Philippines DevCo
- Bukit Makmur.PT - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Meenaskhi Energy Private Limited - India
- Binh Thuan Hamico - Vietnam
- CIMB Investment Bank - Malaysia
- Savvy Resources Ltd - HongKong
- Sakthi Sugars Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Energy Development Corp, Philippines
- Jindal Steel & Power Ltd - India
- Anglo American - United Kingdom
- Salva Resources Pvt Ltd - India
- Ambuja Cements Ltd - India
- Indian Energy Exchange, India
- Global Coal Blending Company Limited - Australia
- Samtan Co., Ltd - South Korea
- Krishnapatnam Port Company Ltd. - India
- Alfred C Toepfer International GmbH - Germany
- Global Green Power PLC Corporation, Philippines
- Petron Corporation, Philippines
- Bahari Cakrawala Sebuku - Indonesia
- Mintek Dendrill Indonesia
- Gujarat Sidhee Cement - India
- Siam City Cement PLC, Thailand
- Madhucon Powers Ltd - India
- MS Steel International - UAE
- Therma Luzon, Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Kaltim Prima Coal - Indonesia
- The University of Queensland
- Ceylon Electricity Board - Sri Lanka
- Ministry of Transport, Egypt
- Asmin Koalindo Tuhup - Indonesia
- Directorate Of Revenue Intelligence - India
- Bulk Trading Sa - Switzerland
- Heidelberg Cement - Germany
- Timah Investasi Mineral - Indoneisa
- Energy Link Ltd, New Zealand
- Chamber of Mines of South Africa
- The Treasury - Australian Government
- Cigading International Bulk Terminal - Indonesia
- Baramulti Group, Indonesia
- Larsen & Toubro Limited - India
- GAC Shipping (India) Pvt Ltd
- Ind-Barath Power Infra Limited - India
- Tamil Nadu electricity Board
- Globalindo Alam Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Coalindo Energy - Indonesia
- Sojitz Corporation - Japan
- Thiess Contractors Indonesia
- Kartika Selabumi Mining - Indonesia
- New Zealand Coal & Carbon
- Kobexindo Tractors - Indoneisa
- White Energy Company Limited
- Attock Cement Pakistan Limited
- Leighton Contractors Pty Ltd - Australia
- Parry Sugars Refinery, India
- Meralco Power Generation, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- SN Aboitiz Power Inc, Philippines
- ASAPP Information Group - India
- Mercator Lines Limited - India
- Toyota Tsusho Corporation, Japan
- TNB Fuel Sdn Bhd - Malaysia
- Mercuria Energy - Indonesia
- Rio Tinto Coal - Australia
- Kideco Jaya Agung - Indonesia
- Pipit Mutiara Jaya. PT, Indonesia
- European Bulk Services B.V. - Netherlands
- Economic Council, Georgia
- Oldendorff Carriers - Singapore
- Miang Besar Coal Terminal - Indonesia
- Indika Energy - Indonesia
- Parliament of New Zealand
- Renaissance Capital - South Africa
- Makarim & Taira - Indonesia
- Singapore Mercantile Exchange
- Uttam Galva Steels Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Rashtriya Ispat Nigam Limited - India
- Dalmia Cement Bharat India
- Barasentosa Lestari - Indonesia
- Price Waterhouse Coopers - Russia
- PNOC Exploration Corporation - Philippines
- Posco Energy - South Korea
- Commonwealth Bank - Australia
- Ministry of Finance - Indonesia
- Romanian Commodities Exchange
- The State Trading Corporation of India Ltd
- Chettinad Cement Corporation Ltd - India
- Gujarat Mineral Development Corp Ltd - India
- Eastern Coal Council - USA
- Kalimantan Lumbung Energi - Indonesia
- Holcim Trading Pte Ltd - Singapore
- PTC India Limited - India
- Star Paper Mills Limited - India
- Bharathi Cement Corporation - India
- Indonesian Coal Mining Association
- South Luzon Thermal Energy Corporation
- Jorong Barutama Greston.PT - Indonesia
- Essar Steel Hazira Ltd - India
- Straits Asia Resources Limited - Singapore
- Australian Coal Association
- IEA Clean Coal Centre - UK
- Maheswari Brothers Coal Limited - India
- Bhushan Steel Limited - India
- Electricity Authority, New Zealand
- Electricity Generating Authority of Thailand
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Planning Commission, India
- Sinarmas Energy and Mining - Indonesia
- Marubeni Corporation - India
- Gujarat Electricity Regulatory Commission - India
- Simpson Spence & Young - Indonesia
- Wood Mackenzie - Singapore
- Ministry of Mines - Canada
- Siam City Cement - Thailand
- Central Electricity Authority - India
- Trasteel International SA, Italy
- GMR Energy Limited - India
- Sindya Power Generating Company Private Ltd
- Semirara Mining Corp, Philippines
- Vizag Seaport Private Limited - India
- SMC Global Power, Philippines
- Indogreen Group - Indonesia
- Formosa Plastics Group - Taiwan
- ICICI Bank Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- IHS Mccloskey Coal Group - USA
- San Jose City I Power Corp, Philippines
- Aboitiz Power Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- AsiaOL BioFuels Corp., Philippines
- LBH Netherlands Bv - Netherlands
- Kumho Petrochemical, South Korea
- Intertek Mineral Services - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- Kapuas Tunggal Persada - Indonesia
- Sical Logistics Limited - India
- International Coal Ventures Pvt Ltd - India
- Karaikal Port Pvt Ltd - India
- Coastal Gujarat Power Limited - India
- Standard Chartered Bank - UAE
- Malabar Cements Ltd - India
- Bangladesh Power Developement Board
- India Bulls Power Limited - India
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Riau Bara Harum - Indonesia
- Altura Mining Limited, Indonesia
- CNBM International Corporation - China
- Videocon Industries ltd - India
- VISA Power Limited - India
- Edison Trading Spa - Italy
- Thai Mozambique Logistica
- Grasim Industreis Ltd - India
- Indo Tambangraya Megah - Indonesia
- Banpu Public Company Limited - Thailand
- Goldman Sachs - Singapore
- Bhoruka Overseas - Indonesia
- Antam Resourcindo - Indonesia
- Minerals Council of Australia
- Manunggal Multi Energi - Indonesia
- Power Finance Corporation Ltd., India
- Medco Energi Mining Internasional
- Bukit Baiduri Energy - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Billiton Holdings Pty Ltd - Australia
- Central Java Power - Indonesia
- Carbofer General Trading SA - India
- Bhatia International Limited - India
- Orica Mining Services - Indonesia
- Independent Power Producers Association of India
- London Commodity Brokers - England
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Xindia Steels Limited - India
- Merrill Lynch Commodities Europe
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Kepco SPC Power Corporation, Philippines
- Latin American Coal - Colombia
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