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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, 11 November 09
INDONESIA ASKS DOMESTIC COAL FIRMS TO SET ASIDE 30PCT OF OUTPUT
Indonesian government said that it had asked domestic coal producers to set aside 30% of their output next year to meet demand from new coal fired p ...
Wednesday, 11 November 09
MINING ACQUISITIONS BECOMING MORE STRATEGIC - E&Y
Mining Weekly reported that, Although miners around the world are looking to position themselves for growth, companies are being more selective when ...
Tuesday, 10 November 09
THAI COAL MINER BANPU Q3 NET UP, BEATS FORECAST
Reuters reported that, Thailand's top coal miner, Banpu, said on Tuesday its third-quarter net earnings rose a higher-than-expected 22 percent, hel ...
Monday, 09 November 09
NAPOCOR DEFERS 50,000 T COAL TENDER
Top Philippine electricity producer National Power Corp. (Napocor) has indefinitely postponed a tender for supply of 50,000 tons of steam coal sched ...
Monday, 09 November 09
SAM'S SEAFOOD HOLDINGS SET TO COMMENCE DRILLING AT INDONESIAN COAL PROJECT
Proactive Investors reported that, Sam's Seafood Holdings is preparing to kick off diamond drilling at the company's Indonesian coal project after ...
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- Indian Oil Corporation Limited
- Petrochimia International Co. Ltd.- Taiwan
- Semirara Mining Corp, Philippines
- Altura Mining Limited, Indonesia
- Bayan Resources Tbk. - Indonesia
- Coastal Gujarat Power Limited - India
- Power Finance Corporation Ltd., India
- The University of Queensland
- Global Business Power Corporation, Philippines
- Marubeni Corporation - India
- Australian Coal Association
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Global Coal Blending Company Limited - Australia
- Sinarmas Energy and Mining - Indonesia
- Manunggal Multi Energi - Indonesia
- Holcim Trading Pte Ltd - Singapore
- London Commodity Brokers - England
- Karbindo Abesyapradhi - Indoneisa
- Electricity Authority, New Zealand
- Minerals Council of Australia
- VISA Power Limited - India
- Pipit Mutiara Jaya. PT, Indonesia
- SMC Global Power, Philippines
- Miang Besar Coal Terminal - Indonesia
- Parry Sugars Refinery, India
- Bhatia International Limited - India
- IHS Mccloskey Coal Group - USA
- Kideco Jaya Agung - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Bangladesh Power Developement Board
- Thai Mozambique Logistica
- New Zealand Coal & Carbon
- Madhucon Powers Ltd - India
- India Bulls Power Limited - India
- Coal and Oil Company - UAE
- Jindal Steel & Power Ltd - India
- Tamil Nadu electricity Board
- Videocon Industries ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PowerSource Philippines DevCo
- The State Trading Corporation of India Ltd
- White Energy Company Limited
- Commonwealth Bank - Australia
- AsiaOL BioFuels Corp., Philippines
- Star Paper Mills Limited - India
- Lanco Infratech Ltd - India
- Eastern Energy - Thailand
- Larsen & Toubro Limited - India
- Vedanta Resources Plc - India
- Mercator Lines Limited - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sical Logistics Limited - India
- Orica Mining Services - Indonesia
- Antam Resourcindo - Indonesia
- Makarim & Taira - Indonesia
- Siam City Cement PLC, Thailand
- ASAPP Information Group - India
- Samtan Co., Ltd - South Korea
- Interocean Group of Companies - India
- SN Aboitiz Power Inc, Philippines
- Ambuja Cements Ltd - India
- Chamber of Mines of South Africa
- Renaissance Capital - South Africa
- Tata Chemicals Ltd - India
- Bharathi Cement Corporation - India
- Oldendorff Carriers - Singapore
- Directorate General of MIneral and Coal - Indonesia
- Malabar Cements Ltd - India
- Savvy Resources Ltd - HongKong
- Heidelberg Cement - Germany
- Romanian Commodities Exchange
- Global Green Power PLC Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Sarangani Energy Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- GVK Power & Infra Limited - India
- Port Waratah Coal Services - Australia
- OPG Power Generation Pvt Ltd - India
- Ministry of Transport, Egypt
- Sindya Power Generating Company Private Ltd
- McConnell Dowell - Australia
- Straits Asia Resources Limited - Singapore
- Trasteel International SA, Italy
- Alfred C Toepfer International GmbH - Germany
- Central Java Power - Indonesia
- Agrawal Coal Company - India
- Merrill Lynch Commodities Europe
- Mintek Dendrill Indonesia
- Directorate Of Revenue Intelligence - India
- Aboitiz Power Corporation - Philippines
- Kaltim Prima Coal - Indonesia
- Iligan Light & Power Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Planning Commission, India
- TNB Fuel Sdn Bhd - Malaysia
- Central Electricity Authority - India
- Rio Tinto Coal - Australia
- Karaikal Port Pvt Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Deloitte Consulting - India
- LBH Netherlands Bv - Netherlands
- GN Power Mariveles Coal Plant, Philippines
- Simpson Spence & Young - Indonesia
- Electricity Generating Authority of Thailand
- Eastern Coal Council - USA
- Parliament of New Zealand
- Indogreen Group - Indonesia
- Medco Energi Mining Internasional
- Globalindo Alam Lestari - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Metalloyd Limited - United Kingdom
- Mjunction Services Limited - India
- Toyota Tsusho Corporation, Japan
- Ministry of Mines - Canada
- Chettinad Cement Corporation Ltd - India
- Maharashtra Electricity Regulatory Commission - India
- Semirara Mining and Power Corporation, Philippines
- Dalmia Cement Bharat India
- Asmin Koalindo Tuhup - Indonesia
- Edison Trading Spa - Italy
- Neyveli Lignite Corporation Ltd, - India
- European Bulk Services B.V. - Netherlands
- Gujarat Mineral Development Corp Ltd - India
- Gujarat Sidhee Cement - India
- Bhoruka Overseas - Indonesia
- Kepco SPC Power Corporation, Philippines
- Mercuria Energy - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Krishnapatnam Port Company Ltd. - India
- SMG Consultants - Indonesia
- Therma Luzon, Inc, Philippines
- PTC India Limited - India
- Riau Bara Harum - Indonesia
- South Luzon Thermal Energy Corporation
- Uttam Galva Steels Limited - India
- Aditya Birla Group - India
- Kohat Cement Company Ltd. - Pakistan
- GMR Energy Limited - India
- Sree Jayajothi Cements Limited - India
- Jorong Barutama Greston.PT - Indonesia
- Energy Link Ltd, New Zealand
- Leighton Contractors Pty Ltd - Australia
- Essar Steel Hazira Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Coalindo Energy - Indonesia
- TeaM Sual Corporation - Philippines
- Posco Energy - South Korea
- Kobexindo Tractors - Indoneisa
- Cement Manufacturers Association - India
- Xindia Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- CIMB Investment Bank - Malaysia
- Rashtriya Ispat Nigam Limited - India
- IEA Clean Coal Centre - UK
- Sojitz Corporation - Japan
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Sakthi Sugars Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Thiess Contractors Indonesia
- Bhushan Steel Limited - India
- Salva Resources Pvt Ltd - India
- Economic Council, Georgia
- Banpu Public Company Limited - Thailand
- Indo Tambangraya Megah - Indonesia
- PNOC Exploration Corporation - Philippines
- Grasim Industreis Ltd - India
- Indian Energy Exchange, India
- Goldman Sachs - Singapore
- Wilmar Investment Holdings
- Anglo American - United Kingdom
- San Jose City I Power Corp, Philippines
- Indika Energy - Indonesia
- Indonesian Coal Mining Association
- CNBM International Corporation - China
- Carbofer General Trading SA - India
- Energy Development Corp, Philippines
- Binh Thuan Hamico - Vietnam
- Latin American Coal - Colombia
- Ministry of Finance - Indonesia
- Meralco Power Generation, Philippines
- Formosa Plastics Group - Taiwan
- Jaiprakash Power Ventures ltd
- Petron Corporation, Philippines
- Baramulti Group, Indonesia
- Wood Mackenzie - Singapore
- Independent Power Producers Association of India
- Kumho Petrochemical, South Korea
- GAC Shipping (India) Pvt Ltd
- Africa Commodities Group - South Africa
- Barasentosa Lestari - Indonesia
- Orica Australia Pty. Ltd.
- ICICI Bank Limited - India
- International Coal Ventures Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Cigading International Bulk Terminal - Indonesia
- Australian Commodity Traders Exchange
- Standard Chartered Bank - UAE
- PetroVietnam Power Coal Import and Supply Company
- Bukit Asam (Persero) Tbk - Indonesia
- Singapore Mercantile Exchange
- Siam City Cement - Thailand
- Bulk Trading Sa - Switzerland
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Bukit Baiduri Energy - Indonesia
- Attock Cement Pakistan Limited
- Borneo Indobara - Indonesia
- MS Steel International - UAE
- Meenaskhi Energy Private Limited - India
- Bukit Makmur.PT - Indonesia
- Georgia Ports Authority, United States
- Vizag Seaport Private Limited - India
- Kartika Selabumi Mining - Indonesia
- The Treasury - Australian Government
- Maheswari Brothers Coal Limited - India
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