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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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Sunday, 01 November 09
THE COAL MOVEMENT TO INDIA FROM SOUTH AFRICA AND INDONESIA WOULD BE CONTINUE INCREASE - VISTAAR SINGAPORE
COALspot.com (Singapore): The BDI continued to be firm with an increase of 60 points and closed at 3,103 points.
The cape index also was firm an ...
Sunday, 01 November 09
INDONESIA ADARO Q3 NET PROFIT JUMPS ON COAL DEMAND
* Q3 net profit up 131.6 percent to 1.27 trillion rupiah
* Q3 revenue up 56.8 percent to 7.12 trillion rupiah
Reuters reported that, Indonesia' ...
Sunday, 01 November 09
PT INDIKA MAY BUY STAKES IN BHPB INDONESIA OPERATIONS
Dow Jones reported that Indonesian coal producer PT Indika Energy may buy stakes in BHP Billiton Limited's Indonesian coal operations and in local ...
Sunday, 01 November 09
ADAVALE RESOURCES MAKES COAL ACQUISITIONS IN INDONESIA
Adavale Resources Limited has entered into an agreement to acquire the rights to two thermal coal projects Tapan and Jambi in Sumatra Indonesia, hel ...
Saturday, 31 October 09
PRODUCERS BENEFIT FROM COAL'S TIGHT SUPPLY AND STRONG DEMAND
The Jakarta Post reported that, The outlook for Indonesian coal producers appears promising with strong volume growth coming from both the domestic ...
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- Jorong Barutama Greston.PT - Indonesia
- Standard Chartered Bank - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- South Luzon Thermal Energy Corporation
- Asmin Koalindo Tuhup - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Central Electricity Authority - India
- Indonesian Coal Mining Association
- Kohat Cement Company Ltd. - Pakistan
- Vizag Seaport Private Limited - India
- Indika Energy - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Kalimantan Lumbung Energi - Indonesia
- Madhucon Powers Ltd - India
- Orica Mining Services - Indonesia
- Sojitz Corporation - Japan
- Sinarmas Energy and Mining - Indonesia
- Therma Luzon, Inc, Philippines
- Parry Sugars Refinery, India
- Formosa Plastics Group - Taiwan
- White Energy Company Limited
- Bhushan Steel Limited - India
- San Jose City I Power Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
- Medco Energi Mining Internasional
- Tamil Nadu electricity Board
- Bukit Makmur.PT - Indonesia
- Maharashtra Electricity Regulatory Commission - India
- GN Power Mariveles Coal Plant, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
- Sical Logistics Limited - India
- ICICI Bank Limited - India
- Maheswari Brothers Coal Limited - India
- Power Finance Corporation Ltd., India
- Singapore Mercantile Exchange
- Energy Development Corp, Philippines
- Posco Energy - South Korea
- GMR Energy Limited - India
- Iligan Light & Power Inc, Philippines
- Mintek Dendrill Indonesia
- Globalindo Alam Lestari - Indonesia
- The University of Queensland
- Cement Manufacturers Association - India
- Semirara Mining and Power Corporation, Philippines
- Kobexindo Tractors - Indoneisa
- Bukit Asam (Persero) Tbk - Indonesia
- Independent Power Producers Association of India
- Jaiprakash Power Ventures ltd
- Holcim Trading Pte Ltd - Singapore
- Savvy Resources Ltd - HongKong
- Tata Chemicals Ltd - India
- IHS Mccloskey Coal Group - USA
- Bhoruka Overseas - Indonesia
- PNOC Exploration Corporation - Philippines
- Electricity Authority, New Zealand
- Marubeni Corporation - India
- Attock Cement Pakistan Limited
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bangladesh Power Developement Board
- Intertek Mineral Services - Indonesia
- PowerSource Philippines DevCo
- Orica Australia Pty. Ltd.
- Jindal Steel & Power Ltd - India
- OPG Power Generation Pvt Ltd - India
- Kepco SPC Power Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Siam City Cement - Thailand
- GAC Shipping (India) Pvt Ltd
- Indogreen Group - Indonesia
- Borneo Indobara - Indonesia
- Minerals Council of Australia
- Edison Trading Spa - Italy
- Mjunction Services Limited - India
- Australian Commodity Traders Exchange
- Trasteel International SA, Italy
- Altura Mining Limited, Indonesia
- Global Green Power PLC Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Essar Steel Hazira Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Lanco Infratech Ltd - India
- Vedanta Resources Plc - India
- The Treasury - Australian Government
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- Wood Mackenzie - Singapore
- PTC India Limited - India
- AsiaOL BioFuels Corp., Philippines
- India Bulls Power Limited - India
- Indian Oil Corporation Limited
- Sindya Power Generating Company Private Ltd
- Manunggal Multi Energi - Indonesia
- Kumho Petrochemical, South Korea
- GVK Power & Infra Limited - India
- Toyota Tsusho Corporation, Japan
- VISA Power Limited - India
- Kaltim Prima Coal - Indonesia
- Leighton Contractors Pty Ltd - Australia
- ASAPP Information Group - India
- Barasentosa Lestari - Indonesia
- Africa Commodities Group - South Africa
- Australian Coal Association
- Makarim & Taira - Indonesia
- McConnell Dowell - Australia
- Indian Energy Exchange, India
- Bulk Trading Sa - Switzerland
- Gujarat Mineral Development Corp Ltd - India
- Latin American Coal - Colombia
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- Karaikal Port Pvt Ltd - India
- Parliament of New Zealand
- Heidelberg Cement - Germany
- Indo Tambangraya Megah - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Binh Thuan Hamico - Vietnam
- Ministry of Mines - Canada
- SN Aboitiz Power Inc, Philippines
- Sarangani Energy Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Deloitte Consulting - India
- Economic Council, Georgia
- Petron Corporation, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Carbofer General Trading SA - India
- Global Business Power Corporation, Philippines
- Salva Resources Pvt Ltd - India
- Chettinad Cement Corporation Ltd - India
- Ministry of Transport, Egypt
- IEA Clean Coal Centre - UK
- Bukit Baiduri Energy - Indonesia
- Mercator Lines Limited - India
- Kartika Selabumi Mining - Indonesia
- CNBM International Corporation - China
- Karbindo Abesyapradhi - Indoneisa
- Ind-Barath Power Infra Limited - India
- Simpson Spence & Young - Indonesia
- Rio Tinto Coal - Australia
- Agrawal Coal Company - India
- Semirara Mining Corp, Philippines
- Coalindo Energy - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Goldman Sachs - Singapore
- Georgia Ports Authority, United States
- Uttam Galva Steels Limited - India
- Coastal Gujarat Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Videocon Industries ltd - India
- Bhatia International Limited - India
- Gujarat Electricity Regulatory Commission - India
- Grasim Industreis Ltd - India
- Planning Commission, India
- Interocean Group of Companies - India
- Mercuria Energy - Indonesia
- Romanian Commodities Exchange
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Billiton Holdings Pty Ltd - Australia
- LBH Netherlands Bv - Netherlands
- Meralco Power Generation, Philippines
- Renaissance Capital - South Africa
- Sakthi Sugars Limited - India
- The State Trading Corporation of India Ltd
- Bharathi Cement Corporation - India
- Larsen & Toubro Limited - India
- SMC Global Power, Philippines
- Directorate Of Revenue Intelligence - India
- New Zealand Coal & Carbon
- Price Waterhouse Coopers - Russia
- Aboitiz Power Corporation - Philippines
- Eastern Energy - Thailand
- Wilmar Investment Holdings
- Bahari Cakrawala Sebuku - Indonesia
- Thiess Contractors Indonesia
- Sree Jayajothi Cements Limited - India
- SMG Consultants - Indonesia
- Star Paper Mills Limited - India
- Merrill Lynch Commodities Europe
- Alfred C Toepfer International GmbH - Germany
- Meenaskhi Energy Private Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Siam City Cement PLC, Thailand
- Rashtriya Ispat Nigam Limited - India
- Dalmia Cement Bharat India
- Eastern Coal Council - USA
- Krishnapatnam Port Company Ltd. - India
- Aditya Birla Group - India
- Xindia Steels Limited - India
- Thai Mozambique Logistica
- Petrochimia International Co. Ltd.- Taiwan
- Electricity Generating Authority of Thailand
- Pendopo Energi Batubara - Indonesia
- International Coal Ventures Pvt Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- PetroVietnam Power Coal Import and Supply Company
- Kideco Jaya Agung - Indonesia
- Chamber of Mines of South Africa
- Samtan Co., Ltd - South Korea
- European Bulk Services B.V. - Netherlands
- Ambuja Cements Ltd - India
- Central Java Power - Indonesia
- Ministry of Finance - Indonesia
- Malabar Cements Ltd - India
- London Commodity Brokers - England
- Anglo American - United Kingdom
- Neyveli Lignite Corporation Ltd, - India
- Baramulti Group, Indonesia
- MS Steel International - UAE
- Commonwealth Bank - Australia
- Energy Link Ltd, New Zealand
- Kapuas Tunggal Persada - Indonesia
- Banpu Public Company Limited - Thailand
- Straits Asia Resources Limited - Singapore
- Riau Bara Harum - Indonesia
- TeaM Sual Corporation - Philippines
- Coal and Oil Company - UAE
- Antam Resourcindo - Indonesia
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