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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, 05 November 09
HMS BERGBAU AG OPENING INDIAN OFFICE
Further step on internationalization track Office in Mumbai Participation in demand for coal imports
HMS Bergbau AG, is an international coal tra ...
Thursday, 05 November 09
SAM'S SEAFOOD HOLDINGS MOVES STEP CLOSER TO COAL EXPLORATION IN INDONESIA
Sam’s Seafood Holdings Limited, which is proposed to be renamed Pan Asia Corporation Limited, is moving closer to becoming an exploration and ...
Wednesday, 04 November 09
INDONESIA CAP ON COAL EXPORTS MAY HIT INDIAN POWER SECTOR
BL reported that Karnataka power sector is likely to be partially impacted by the Indonesian Government move to restrict coal exports.
Private se ...
Wednesday, 04 November 09
SA 2010 COAL EXPORTS SEEN AT 65M TO 68M TONS - ANALYSTS
South Africa's thermal coal exports could rise to as high as 68 million tonnes in 2010 but are more likely to be 64-65 million compared to 60 milli ...
Wednesday, 04 November 09
BAKRIE MAY WIN BERAU COAL BID FROM ARMADIAN
The Bakrie group is likely to be selected as buyer of PT Berau Coal, the country’s fifth-largest coal producer, two people familiar with the m ...
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- Eastern Energy - Thailand
- Kalimantan Lumbung Energi - Indonesia
- SMG Consultants - Indonesia
- Global Business Power Corporation, Philippines
- Makarim & Taira - Indonesia
- Ind-Barath Power Infra Limited - India
- McConnell Dowell - Australia
- Alfred C Toepfer International GmbH - Germany
- Riau Bara Harum - Indonesia
- PowerSource Philippines DevCo
- Coastal Gujarat Power Limited - India
- Aditya Birla Group - India
- Kapuas Tunggal Persada - Indonesia
- New Zealand Coal & Carbon
- Maharashtra Electricity Regulatory Commission - India
- Tata Chemicals Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- Samtan Co., Ltd - South Korea
- Jorong Barutama Greston.PT - Indonesia
- Malabar Cements Ltd - India
- Kartika Selabumi Mining - Indonesia
- Singapore Mercantile Exchange
- PNOC Exploration Corporation - Philippines
- Orica Mining Services - Indonesia
- Mjunction Services Limited - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- GVK Power & Infra Limited - India
- Lanco Infratech Ltd - India
- Coal and Oil Company - UAE
- South Luzon Thermal Energy Corporation
- Oldendorff Carriers - Singapore
- ASAPP Information Group - India
- Vizag Seaport Private Limited - India
- Vedanta Resources Plc - India
- Petrochimia International Co. Ltd.- Taiwan
- PetroVietnam Power Coal Import and Supply Company
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Mercator Lines Limited - India
- Parry Sugars Refinery, India
- Commonwealth Bank - Australia
- Independent Power Producers Association of India
- Therma Luzon, Inc, Philippines
- Pendopo Energi Batubara - Indonesia
- Romanian Commodities Exchange
- Central Electricity Authority - India
- Cement Manufacturers Association - India
- Kaltim Prima Coal - Indonesia
- Essar Steel Hazira Ltd - India
- The University of Queensland
- Orica Australia Pty. Ltd.
- Renaissance Capital - South Africa
- Ministry of Mines - Canada
- Bukit Asam (Persero) Tbk - Indonesia
- Jaiprakash Power Ventures ltd
- Formosa Plastics Group - Taiwan
- Bhatia International Limited - India
- Meralco Power Generation, Philippines
- Banpu Public Company Limited - Thailand
- Asmin Koalindo Tuhup - Indonesia
- TeaM Sual Corporation - Philippines
- GAC Shipping (India) Pvt Ltd
- Meenaskhi Energy Private Limited - India
- Gujarat Electricity Regulatory Commission - India
- Interocean Group of Companies - India
- Thai Mozambique Logistica
- Chettinad Cement Corporation Ltd - India
- Madhucon Powers Ltd - India
- Standard Chartered Bank - UAE
- LBH Netherlands Bv - Netherlands
- Bahari Cakrawala Sebuku - Indonesia
- Indian Energy Exchange, India
- Bukit Makmur.PT - Indonesia
- Larsen & Toubro Limited - India
- Central Java Power - Indonesia
- Directorate Of Revenue Intelligence - India
- Trasteel International SA, Italy
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Barasentosa Lestari - Indonesia
- Heidelberg Cement - Germany
- Maheswari Brothers Coal Limited - India
- Manunggal Multi Energi - Indonesia
- Baramulti Group, Indonesia
- Edison Trading Spa - Italy
- Siam City Cement - Thailand
- The Treasury - Australian Government
- Economic Council, Georgia
- Electricity Generating Authority of Thailand
- Latin American Coal - Colombia
- Aboitiz Power Corporation - Philippines
- VISA Power Limited - India
- Binh Thuan Hamico - Vietnam
- Indian Oil Corporation Limited
- IEA Clean Coal Centre - UK
- Sree Jayajothi Cements Limited - India
- Chamber of Mines of South Africa
- Parliament of New Zealand
- Grasim Industreis Ltd - India
- Global Coal Blending Company Limited - Australia
- Krishnapatnam Port Company Ltd. - India
- Billiton Holdings Pty Ltd - Australia
- Planning Commission, India
- Toyota Tsusho Corporation, Japan
- Mintek Dendrill Indonesia
- Mercuria Energy - Indonesia
- Antam Resourcindo - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Medco Energi Mining Internasional
- Kobexindo Tractors - Indoneisa
- GN Power Mariveles Coal Plant, Philippines
- Electricity Authority, New Zealand
- European Bulk Services B.V. - Netherlands
- MS Steel International - UAE
- Goldman Sachs - Singapore
- Energy Link Ltd, New Zealand
- Miang Besar Coal Terminal - Indonesia
- Borneo Indobara - Indonesia
- Holcim Trading Pte Ltd - Singapore
- Bhoruka Overseas - Indonesia
- Attock Cement Pakistan Limited
- Star Paper Mills Limited - India
- Coalindo Energy - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Eastern Coal Council - USA
- Indo Tambangraya Megah - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Salva Resources Pvt Ltd - India
- Rio Tinto Coal - Australia
- Metalloyd Limited - United Kingdom
- Ambuja Cements Ltd - India
- Jindal Steel & Power Ltd - India
- Intertek Mineral Services - Indonesia
- Australian Coal Association
- Energy Development Corp, Philippines
- GMR Energy Limited - India
- Karaikal Port Pvt Ltd - India
- Georgia Ports Authority, United States
- Port Waratah Coal Services - Australia
- Gujarat Mineral Development Corp Ltd - India
- Sojitz Corporation - Japan
- Vijayanagar Sugar Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- CNBM International Corporation - China
- Directorate General of MIneral and Coal - Indonesia
- Indika Energy - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- AsiaOL BioFuels Corp., Philippines
- CIMB Investment Bank - Malaysia
- The State Trading Corporation of India Ltd
- Kepco SPC Power Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- Straits Asia Resources Limited - Singapore
- Neyveli Lignite Corporation Ltd, - India
- Xindia Steels Limited - India
- India Bulls Power Limited - India
- Altura Mining Limited, Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Global Green Power PLC Corporation, Philippines
- Semirara Mining and Power Corporation, Philippines
- Savvy Resources Ltd - HongKong
- Posco Energy - South Korea
- Ceylon Electricity Board - Sri Lanka
- Timah Investasi Mineral - Indoneisa
- International Coal Ventures Pvt Ltd - India
- Australian Commodity Traders Exchange
- Merrill Lynch Commodities Europe
- Thiess Contractors Indonesia
- Kideco Jaya Agung - Indonesia
- Africa Commodities Group - South Africa
- Simpson Spence & Young - Indonesia
- Agrawal Coal Company - India
- Petron Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Siam City Cement PLC, Thailand
- IHS Mccloskey Coal Group - USA
- Dalmia Cement Bharat India
- San Jose City I Power Corp, Philippines
- Carbofer General Trading SA - India
- Globalindo Alam Lestari - Indonesia
- Bhushan Steel Limited - India
- Sarangani Energy Corporation, Philippines
- Indonesian Coal Mining Association
- Semirara Mining Corp, Philippines
- Sindya Power Generating Company Private Ltd
- PTC India Limited - India
- Sakthi Sugars Limited - India
- London Commodity Brokers - England
- Ministry of Transport, Egypt
- ICICI Bank Limited - India
- Ministry of Finance - Indonesia
- Marubeni Corporation - India
- Rashtriya Ispat Nigam Limited - India
- Bangladesh Power Developement Board
- Bharathi Cement Corporation - India
- Kumho Petrochemical, South Korea
- Tamil Nadu electricity Board
- Bulk Trading Sa - Switzerland
- Iligan Light & Power Inc, Philippines
- Cigading International Bulk Terminal - Indonesia
- Bukit Baiduri Energy - Indonesia
- Uttam Galva Steels Limited - India
- Anglo American - United Kingdom
- Wilmar Investment Holdings
- Minerals Council of Australia
- White Energy Company Limited
- SN Aboitiz Power Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Price Waterhouse Coopers - Russia
- Videocon Industries ltd - India
- Indogreen Group - Indonesia
- SMC Global Power, Philippines
- Sical Logistics Limited - India
- Wood Mackenzie - Singapore
- Deloitte Consulting - India
- Power Finance Corporation Ltd., India
- Gujarat Sidhee Cement - India
- Karbindo Abesyapradhi - Indoneisa
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