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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, 29 October 09
COAL OF AFRICA SEES VELE OUTPUT BY APRIL 2010
* First coal from Mooiplaats mined and sold
* Talks with Transnet on rail PPP on track
Reuters reported that, Coal of Africa (CoAL) said on Mond ...
Thursday, 29 October 09
UAE FUND EYES INDIA POWER FOR INDONESIAN COAL
Reuters reported that, the UAE's Middle East Coal (MEC) is in talks to buy equity stakes in India's power plants in exchange for long-term coal su ...
Thursday, 29 October 09
CESC POSTS RS 126 CRORE (US$ 26,655,178) NET PROFIT IN QUARTER TWO
Economic Times reported that, Energy major CESC posted a marginal increase in net profit at Rs 126 crore (US$ 26,655,178) for the quarter ended Sep ...
Thursday, 29 October 09
INDIA MMTC TENDER SET TO BOOST S.AFRICA COAL
The South African coal market is set to be boosted further by India's state-owned trading firm MMTC Ltd's tender for 12.5 million tonnes, Indian t ...
Thursday, 29 October 09
INDIA CEMENTS SET TO ACQUIRE COAL MINE IN INDONESIA
Business-Standard reported that, India Cements is set to acquire a coal mine in Indonesia for around $20 million (around Rs 100 crore). The company ...
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- Billiton Holdings Pty Ltd - Australia
- Parry Sugars Refinery, India
- Vijayanagar Sugar Pvt Ltd - India
- Dalmia Cement Bharat India
- Alfred C Toepfer International GmbH - Germany
- Agrawal Coal Company - India
- Meenaskhi Energy Private Limited - India
- Orica Australia Pty. Ltd.
- Sojitz Corporation - Japan
- Bukit Baiduri Energy - Indonesia
- MS Steel International - UAE
- ICICI Bank Limited - India
- London Commodity Brokers - England
- Antam Resourcindo - Indonesia
- Parliament of New Zealand
- Formosa Plastics Group - Taiwan
- Semirara Mining Corp, Philippines
- Coal and Oil Company - UAE
- Eastern Energy - Thailand
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Central Java Power - Indonesia
- Aboitiz Power Corporation - Philippines
- Rio Tinto Coal - Australia
- Sarangani Energy Corporation, Philippines
- Orica Mining Services - Indonesia
- New Zealand Coal & Carbon
- Eastern Coal Council - USA
- The University of Queensland
- Asmin Koalindo Tuhup - Indonesia
- Bhoruka Overseas - Indonesia
- Kideco Jaya Agung - Indonesia
- Coalindo Energy - Indonesia
- Edison Trading Spa - Italy
- Semirara Mining and Power Corporation, Philippines
- Bhatia International Limited - India
- GVK Power & Infra Limited - India
- Petron Corporation, Philippines
- SN Aboitiz Power Inc, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Salva Resources Pvt Ltd - India
- Minerals Council of Australia
- Indian Energy Exchange, India
- Videocon Industries ltd - India
- Jorong Barutama Greston.PT - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bhushan Steel Limited - India
- Kartika Selabumi Mining - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Central Electricity Authority - India
- AsiaOL BioFuels Corp., Philippines
- Wood Mackenzie - Singapore
- Power Finance Corporation Ltd., India
- Straits Asia Resources Limited - Singapore
- Offshore Bulk Terminal Pte Ltd, Singapore
- Ambuja Cements Ltd - India
- Simpson Spence & Young - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Lanco Infratech Ltd - India
- Australian Commodity Traders Exchange
- Globalindo Alam Lestari - Indonesia
- Port Waratah Coal Services - Australia
- Trasteel International SA, Italy
- Kalimantan Lumbung Energi - Indonesia
- Chettinad Cement Corporation Ltd - India
- Africa Commodities Group - South Africa
- Sakthi Sugars Limited - India
- Indogreen Group - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- Barasentosa Lestari - Indonesia
- Binh Thuan Hamico - Vietnam
- Vedanta Resources Plc - India
- Georgia Ports Authority, United States
- Global Coal Blending Company Limited - Australia
- Krishnapatnam Port Company Ltd. - India
- Gujarat Sidhee Cement - India
- Riau Bara Harum - Indonesia
- Siam City Cement PLC, Thailand
- Kepco SPC Power Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Marubeni Corporation - India
- India Bulls Power Limited - India
- Manunggal Multi Energi - Indonesia
- GMR Energy Limited - India
- Indika Energy - Indonesia
- Karaikal Port Pvt Ltd - India
- Tata Chemicals Ltd - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Standard Chartered Bank - UAE
- Mjunction Services Limited - India
- Heidelberg Cement - Germany
- South Luzon Thermal Energy Corporation
- Chamber of Mines of South Africa
- Intertek Mineral Services - Indonesia
- Electricity Generating Authority of Thailand
- Mercator Lines Limited - India
- Economic Council, Georgia
- Xindia Steels Limited - India
- San Jose City I Power Corp, Philippines
- Baramulti Group, Indonesia
- Holcim Trading Pte Ltd - Singapore
- Iligan Light & Power Inc, Philippines
- European Bulk Services B.V. - Netherlands
- Karbindo Abesyapradhi - Indoneisa
- Aditya Birla Group - India
- Electricity Authority, New Zealand
- GAC Shipping (India) Pvt Ltd
- Energy Link Ltd, New Zealand
- Jindal Steel & Power Ltd - India
- Carbofer General Trading SA - India
- Grasim Industreis Ltd - India
- Price Waterhouse Coopers - Russia
- Ministry of Transport, Egypt
- Romanian Commodities Exchange
- Attock Cement Pakistan Limited
- Global Green Power PLC Corporation, Philippines
- Metalloyd Limited - United Kingdom
- International Coal Ventures Pvt Ltd - India
- Renaissance Capital - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- The State Trading Corporation of India Ltd
- Ceylon Electricity Board - Sri Lanka
- Borneo Indobara - Indonesia
- Directorate Of Revenue Intelligence - India
- Kobexindo Tractors - Indoneisa
- Goldman Sachs - Singapore
- CNBM International Corporation - China
- Wilmar Investment Holdings
- Meralco Power Generation, Philippines
- Independent Power Producers Association of India
- Kumho Petrochemical, South Korea
- Sindya Power Generating Company Private Ltd
- Savvy Resources Ltd - HongKong
- Oldendorff Carriers - Singapore
- PNOC Exploration Corporation - Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Pendopo Energi Batubara - Indonesia
- Mintek Dendrill Indonesia
- Rashtriya Ispat Nigam Limited - India
- Mercuria Energy - Indonesia
- Makarim & Taira - Indonesia
- Miang Besar Coal Terminal - Indonesia
- Tamil Nadu electricity Board
- White Energy Company Limited
- Leighton Contractors Pty Ltd - Australia
- Gujarat Electricity Regulatory Commission - India
- Bukit Makmur.PT - Indonesia
- Anglo American - United Kingdom
- Indian Oil Corporation Limited
- GN Power Mariveles Coal Plant, Philippines
- Indo Tambangraya Megah - Indonesia
- Sree Jayajothi Cements Limited - India
- Interocean Group of Companies - India
- Larsen & Toubro Limited - India
- Latin American Coal - Colombia
- Commonwealth Bank - Australia
- Ind-Barath Power Infra Limited - India
- IHS Mccloskey Coal Group - USA
- PTC India Limited - India
- Bahari Cakrawala Sebuku - Indonesia
- Thai Mozambique Logistica
- Bulk Trading Sa - Switzerland
- CIMB Investment Bank - Malaysia
- Sical Logistics Limited - India
- McConnell Dowell - Australia
- LBH Netherlands Bv - Netherlands
- Essar Steel Hazira Ltd - India
- Singapore Mercantile Exchange
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Maheswari Brothers Coal Limited - India
- Samtan Co., Ltd - South Korea
- OPG Power Generation Pvt Ltd - India
- Toyota Tsusho Corporation, Japan
- Gujarat Mineral Development Corp Ltd - India
- The Treasury - Australian Government
- ASAPP Information Group - India
- Bangladesh Power Developement Board
- Cement Manufacturers Association - India
- Posco Energy - South Korea
- Altura Mining Limited, Indonesia
- Siam City Cement - Thailand
- TNB Fuel Sdn Bhd - Malaysia
- Uttam Galva Steels Limited - India
- Kapuas Tunggal Persada - Indonesia
- Indonesian Coal Mining Association
- Medco Energi Mining Internasional
- Bharathi Cement Corporation - India
- PowerSource Philippines DevCo
- PetroVietnam Power Coal Import and Supply Company
- Star Paper Mills Limited - India
- Maharashtra Electricity Regulatory Commission - India
- VISA Power Limited - India
- Madhucon Powers Ltd - India
- Deloitte Consulting - India
- Banpu Public Company Limited - Thailand
- Sinarmas Energy and Mining - Indonesia
- IEA Clean Coal Centre - UK
- Merrill Lynch Commodities Europe
- Global Business Power Corporation, Philippines
- Timah Investasi Mineral - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Ministry of Finance - Indonesia
- Thiess Contractors Indonesia
- Kaltim Prima Coal - Indonesia
- Petrochimia International Co. Ltd.- Taiwan
- Australian Coal Association
- Coastal Gujarat Power Limited - India
- Bayan Resources Tbk. - Indonesia
- Vizag Seaport Private Limited - India
- SMG Consultants - Indonesia
- SMC Global Power, Philippines
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Malabar Cements Ltd - India
- Ministry of Mines - Canada
- Energy Development Corp, Philippines
- Planning Commission, India
- TeaM Sual Corporation - Philippines
- Jaiprakash Power Ventures ltd
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