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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, 04 November 09
BINANI HOPES TO BUY INDONESIAN COAL MINE IN 2-3 MONTHS
"We are still negotiating, but hope to conclude the deal in the next two to three months," Binani Cement Managing Director Vinod Juneja to ...
Tuesday, 03 November 09
CHINA TO BE NET COAL IMPORTER IN 2009
China is accelerating its importation of coal to cope with fallen output caused by the consolidation of small coalmines, and is likely to become a n ...
Monday, 02 November 09
RIO TINTO WARNS ON CHEAP MONGOLIAN COAL
The Age reported that, Mining giant Rio Tinto has warned that cheap coal from Mongolia as well as congestion at the Port of Newcastle in NSW could u ...
Monday, 02 November 09
ESSAR SEEKS COAL ASSETS IN SOUTH AFRICA
Paguntaka reported that, Essar Group plans to acquire coal assets in South Africa to help boost its power business in India. A senior executive of E ...
Sunday, 01 November 09
MINES REGULATION AMENDMENT BILL TO BE TABLED IN PARLIAMENT
Thaindia News reported that, A bill seeking to amend the Mines and Minerals Development Regulation Act, 1957, will be introduced in the winter sessi ...
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- Thiess Contractors Indonesia
- Indika Energy - Indonesia
- Carbofer General Trading SA - India
- Neyveli Lignite Corporation Ltd, - India
- Coal and Oil Company - UAE
- Posco Energy - South Korea
- Offshore Bulk Terminal Pte Ltd, Singapore
- Siam City Cement PLC, Thailand
- Coastal Gujarat Power Limited - India
- ICICI Bank Limited - India
- CIMB Investment Bank - Malaysia
- Sree Jayajothi Cements Limited - India
- Sakthi Sugars Limited - India
- Kaltim Prima Coal - Indonesia
- Lanco Infratech Ltd - India
- Sarangani Energy Corporation, Philippines
- OPG Power Generation Pvt Ltd - India
- European Bulk Services B.V. - Netherlands
- Vijayanagar Sugar Pvt Ltd - India
- Makarim & Taira - Indonesia
- India Bulls Power Limited - India
- Vizag Seaport Private Limited - India
- Barasentosa Lestari - Indonesia
- Bukit Baiduri Energy - Indonesia
- Krishnapatnam Port Company Ltd. - India
- Aboitiz Power Corporation - Philippines
- PNOC Exploration Corporation - Philippines
- Ind-Barath Power Infra Limited - India
- Global Green Power PLC Corporation, Philippines
- Asmin Koalindo Tuhup - Indonesia
- GMR Energy Limited - India
- Kohat Cement Company Ltd. - Pakistan
- Kepco SPC Power Corporation, Philippines
- Goldman Sachs - Singapore
- Deloitte Consulting - India
- Jindal Steel & Power Ltd - India
- Altura Mining Limited, Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Videocon Industries ltd - India
- Electricity Authority, New Zealand
- Wood Mackenzie - Singapore
- Binh Thuan Hamico - Vietnam
- Renaissance Capital - South Africa
- Indian Energy Exchange, India
- ASAPP Information Group - India
- Ministry of Transport, Egypt
- Indo Tambangraya Megah - Indonesia
- Global Business Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- SMG Consultants - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Singapore Mercantile Exchange
- Metalloyd Limited - United Kingdom
- Power Finance Corporation Ltd., India
- Sindya Power Generating Company Private Ltd
- Electricity Generating Authority of Thailand
- CNBM International Corporation - China
- Bharathi Cement Corporation - India
- Eastern Coal Council - USA
- Manunggal Multi Energi - Indonesia
- Pendopo Energi Batubara - Indonesia
- Mintek Dendrill Indonesia
- Romanian Commodities Exchange
- Kideco Jaya Agung - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Bukit Makmur.PT - Indonesia
- Tata Chemicals Ltd - India
- Interocean Group of Companies - India
- Energy Development Corp, Philippines
- Mercator Lines Limited - India
- London Commodity Brokers - England
- Latin American Coal - Colombia
- Mercuria Energy - Indonesia
- Georgia Ports Authority, United States
- Formosa Plastics Group - Taiwan
- Directorate Of Revenue Intelligence - India
- Bayan Resources Tbk. - Indonesia
- Jaiprakash Power Ventures ltd
- Price Waterhouse Coopers - Russia
- Bangladesh Power Developement Board
- LBH Netherlands Bv - Netherlands
- Minerals Council of Australia
- Borneo Indobara - Indonesia
- Siam City Cement - Thailand
- TeaM Sual Corporation - Philippines
- Semirara Mining and Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Ambuja Cements Ltd - India
- Antam Resourcindo - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Medco Energi Mining Internasional
- Aditya Birla Group - India
- Iligan Light & Power Inc, Philippines
- Planning Commission, India
- Billiton Holdings Pty Ltd - Australia
- Baramulti Group, Indonesia
- Madhucon Powers Ltd - India
- Ministry of Mines - Canada
- Energy Link Ltd, New Zealand
- Independent Power Producers Association of India
- White Energy Company Limited
- Holcim Trading Pte Ltd - Singapore
- Bulk Trading Sa - Switzerland
- Intertek Mineral Services - Indonesia
- San Jose City I Power Corp, Philippines
- Riau Bara Harum - Indonesia
- Simpson Spence & Young - Indonesia
- PowerSource Philippines DevCo
- Parliament of New Zealand
- Bahari Cakrawala Sebuku - Indonesia
- Kobexindo Tractors - Indoneisa
- Wilmar Investment Holdings
- Standard Chartered Bank - UAE
- IHS Mccloskey Coal Group - USA
- Trasteel International SA, Italy
- Economic Council, Georgia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Chettinad Cement Corporation Ltd - India
- Larsen & Toubro Limited - India
- Eastern Energy - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Meenaskhi Energy Private Limited - India
- Orica Australia Pty. Ltd.
- Xindia Steels Limited - India
- Commonwealth Bank - Australia
- South Luzon Thermal Energy Corporation
- Straits Asia Resources Limited - Singapore
- Indian Oil Corporation Limited
- Australian Commodity Traders Exchange
- Central Electricity Authority - India
- Kapuas Tunggal Persada - Indonesia
- AsiaOL BioFuels Corp., Philippines
- Heidelberg Cement - Germany
- Bhushan Steel Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Star Paper Mills Limited - India
- Oldendorff Carriers - Singapore
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sojitz Corporation - Japan
- The State Trading Corporation of India Ltd
- Marubeni Corporation - India
- Rashtriya Ispat Nigam Limited - India
- Bhoruka Overseas - Indonesia
- The University of Queensland
- Gujarat Mineral Development Corp Ltd - India
- Vedanta Resources Plc - India
- Bukit Asam (Persero) Tbk - Indonesia
- Ministry of Finance - Indonesia
- Parry Sugars Refinery, India
- Chamber of Mines of South Africa
- Karaikal Port Pvt Ltd - India
- Miang Besar Coal Terminal - Indonesia
- GVK Power & Infra Limited - India
- Uttam Galva Steels Limited - India
- Salva Resources Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Cigading International Bulk Terminal - Indonesia
- SMC Global Power, Philippines
- Savvy Resources Ltd - HongKong
- Sical Logistics Limited - India
- Indogreen Group - Indonesia
- Ceylon Electricity Board - Sri Lanka
- GAC Shipping (India) Pvt Ltd
- Samtan Co., Ltd - South Korea
- Merrill Lynch Commodities Europe
- Central Java Power - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Agrawal Coal Company - India
- Edison Trading Spa - Italy
- Kartika Selabumi Mining - Indonesia
- New Zealand Coal & Carbon
- Karbindo Abesyapradhi - Indoneisa
- Orica Mining Services - Indonesia
- Globalindo Alam Lestari - Indonesia
- Attock Cement Pakistan Limited
- Rio Tinto Coal - Australia
- Gujarat Sidhee Cement - India
- Africa Commodities Group - South Africa
- Malabar Cements Ltd - India
- Coalindo Energy - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Kumho Petrochemical, South Korea
- Grasim Industreis Ltd - India
- IEA Clean Coal Centre - UK
- Thai Mozambique Logistica
- Dalmia Cement Bharat India
- Meralco Power Generation, Philippines
- Tamil Nadu electricity Board
- Toyota Tsusho Corporation, Japan
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Sinarmas Energy and Mining - Indonesia
- Petron Corporation, Philippines
- Indonesian Coal Mining Association
- Maheswari Brothers Coal Limited - India
- Bhatia International Limited - India
- Anglo American - United Kingdom
- Cement Manufacturers Association - India
- MS Steel International - UAE
- Kalimantan Lumbung Energi - Indonesia
- SN Aboitiz Power Inc, Philippines
- Mjunction Services Limited - India
- Alfred C Toepfer International GmbH - Germany
- Asia Pacific Energy Resources Ventures Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- VISA Power Limited - India
- Port Waratah Coal Services - Australia
- Global Coal Blending Company Limited - Australia
- McConnell Dowell - Australia
- TNB Fuel Sdn Bhd - Malaysia
- PetroVietnam Power Coal Import and Supply Company
- Jorong Barutama Greston.PT - Indonesia
- Essar Steel Hazira Ltd - India
- Australian Coal Association
- PTC India Limited - India
- The Treasury - Australian Government
- Semirara Mining Corp, Philippines
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