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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
PTC INDIA UNIT CHASES 2.5 MTPA INDONESIAN COAL
Reuters reported that, PTC Energy is in talks with an Indonesian firm to source 2.5 million tonnes per annum (MTPA) coal for its 350-400 MW power to ...
Thursday, 29 October 09
CHINA MAY SEEK THERMAL COAL ELSEWHERE IF AUSTRALIAN EXPORT COSTS RISE, SAYS REPORT
The Australian reported that, CHINA is likely to turn to alternative markets for thermal coal if the cost and availability of Australia's exports a ...
Thursday, 29 October 09
CURRENCIES, ASIA DEMAND TO LIFT EUROPE COAL PRICE
Supportive currency movements and strong Asian demand mean the price of coal delivered into Europe is poised to rise more than 30 percent to above $ ...
Wednesday, 28 October 09
AUSTRALIAN POWER STATION COAL PRICE TOPPED USD 73 A TONNE
Reuters reported that prices of power station coal in Australia, a benchmark for Asia, crept up for the fourth week and topped USD 73 a tonne, as a ...
Wednesday, 28 October 09
MIDDLE EAST COAL EYEING INDIAN POWER PLANTS IN EXCHANGE FOR LONG TERM COAL SUPPLY
Reuters reported that UAE's Middle East Coal is in talks to buy equity stakes in India's power plants in exchange for long term coal supply.
ME ...
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- Mercuria Energy - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Interocean Group of Companies - India
- Pendopo Energi Batubara - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Indian Energy Exchange, India
- Miang Besar Coal Terminal - Indonesia
- Makarim & Taira - Indonesia
- Renaissance Capital - South Africa
- Electricity Generating Authority of Thailand
- Planning Commission, India
- Kartika Selabumi Mining - Indonesia
- Wood Mackenzie - Singapore
- Mjunction Services Limited - India
- Jaiprakash Power Ventures ltd
- Africa Commodities Group - South Africa
- Central Electricity Authority - India
- Central Java Power - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Chettinad Cement Corporation Ltd - India
- ASAPP Information Group - India
- Iligan Light & Power Inc, Philippines
- Parry Sugars Refinery, India
- Sakthi Sugars Limited - India
- Karbindo Abesyapradhi - Indoneisa
- Heidelberg Cement - Germany
- Vedanta Resources Plc - India
- Aboitiz Power Corporation - Philippines
- Orica Australia Pty. Ltd.
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- The State Trading Corporation of India Ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- Indogreen Group - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Xindia Steels Limited - India
- Energy Development Corp, Philippines
- CNBM International Corporation - China
- Bulk Trading Sa - Switzerland
- Sojitz Corporation - Japan
- Anglo American - United Kingdom
- Salva Resources Pvt Ltd - India
- Banpu Public Company Limited - Thailand
- Sical Logistics Limited - India
- Deloitte Consulting - India
- Directorate Of Revenue Intelligence - India
- Attock Cement Pakistan Limited
- PTC India Limited - India
- Electricity Authority, New Zealand
- Ind-Barath Power Infra Limited - India
- Posco Energy - South Korea
- Oldendorff Carriers - Singapore
- Asmin Koalindo Tuhup - Indonesia
- Savvy Resources Ltd - HongKong
- Indika Energy - Indonesia
- Bahari Cakrawala Sebuku - Indonesia
- Altura Mining Limited, Indonesia
- Semirara Mining and Power Corporation, Philippines
- Trasteel International SA, Italy
- Marubeni Corporation - India
- Independent Power Producers Association of India
- Kumho Petrochemical, South Korea
- Maharashtra Electricity Regulatory Commission - India
- Barasentosa Lestari - Indonesia
- San Jose City I Power Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Neyveli Lignite Corporation Ltd, - India
- PNOC Exploration Corporation - Philippines
- Wilmar Investment Holdings
- Kapuas Tunggal Persada - Indonesia
- Globalindo Alam Lestari - Indonesia
- Bangladesh Power Developement Board
- Pipit Mutiara Jaya. PT, Indonesia
- Bukit Makmur.PT - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Tamil Nadu electricity Board
- Ministry of Finance - Indonesia
- Parliament of New Zealand
- Thiess Contractors Indonesia
- OPG Power Generation Pvt Ltd - India
- Gujarat Sidhee Cement - India
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- Romanian Commodities Exchange
- Australian Commodity Traders Exchange
- Ambuja Cements Ltd - India
- McConnell Dowell - Australia
- Indonesian Coal Mining Association
- Toyota Tsusho Corporation, Japan
- Grasim Industreis Ltd - India
- Global Business Power Corporation, Philippines
- Vijayanagar Sugar Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- India Bulls Power Limited - India
- Timah Investasi Mineral - Indoneisa
- Cigading International Bulk Terminal - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Bukit Baiduri Energy - Indonesia
- LBH Netherlands Bv - Netherlands
- Standard Chartered Bank - UAE
- PetroVietnam Power Coal Import and Supply Company
- VISA Power Limited - India
- Manunggal Multi Energi - Indonesia
- Ministry of Transport, Egypt
- Mercator Lines Limited - India
- Coalindo Energy - Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- New Zealand Coal & Carbon
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Australian Coal Association
- GMR Energy Limited - India
- Bhatia International Limited - India
- Thai Mozambique Logistica
- Port Waratah Coal Services - Australia
- Goldman Sachs - Singapore
- The University of Queensland
- Gujarat Mineral Development Corp Ltd - India
- Directorate General of MIneral and Coal - Indonesia
- Lanco Infratech Ltd - India
- Holcim Trading Pte Ltd - Singapore
- Maheswari Brothers Coal Limited - India
- Alfred C Toepfer International GmbH - Germany
- Petrochimia International Co. Ltd.- Taiwan
- SMG Consultants - Indonesia
- Price Waterhouse Coopers - Russia
- GAC Shipping (India) Pvt Ltd
- Meralco Power Generation, Philippines
- Antam Resourcindo - Indonesia
- Vizag Seaport Private Limited - India
- Videocon Industries ltd - India
- PowerSource Philippines DevCo
- Riau Bara Harum - Indonesia
- Georgia Ports Authority, United States
- Star Paper Mills Limited - India
- Madhucon Powers Ltd - India
- Malabar Cements Ltd - India
- Straits Asia Resources Limited - Singapore
- Merrill Lynch Commodities Europe
- IEA Clean Coal Centre - UK
- Sree Jayajothi Cements Limited - India
- Singapore Mercantile Exchange
- Indian Oil Corporation Limited
- Kohat Cement Company Ltd. - Pakistan
- London Commodity Brokers - England
- Borneo Indobara - Indonesia
- Jindal Steel & Power Ltd - India
- Kideco Jaya Agung - Indonesia
- Semirara Mining Corp, Philippines
- Therma Luzon, Inc, Philippines
- Bhoruka Overseas - Indonesia
- Uttam Galva Steels Limited - India
- Latin American Coal - Colombia
- Carbofer General Trading SA - India
- Baramulti Group, Indonesia
- Minerals Council of Australia
- Coastal Gujarat Power Limited - India
- GVK Power & Infra Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Cement Manufacturers Association - India
- Energy Link Ltd, New Zealand
- South Luzon Thermal Energy Corporation
- Samtan Co., Ltd - South Korea
- Orica Mining Services - Indonesia
- SMC Global Power, Philippines
- Medco Energi Mining Internasional
- Krishnapatnam Port Company Ltd. - India
- GN Power Mariveles Coal Plant, Philippines
- Siam City Cement - Thailand
- Offshore Bulk Terminal Pte Ltd, Singapore
- Rio Tinto Coal - Australia
- Eastern Coal Council - USA
- Coal and Oil Company - UAE
- Meenaskhi Energy Private Limited - India
- Leighton Contractors Pty Ltd - Australia
- Jorong Barutama Greston.PT - Indonesia
- Aditya Birla Group - India
- Commonwealth Bank - Australia
- White Energy Company Limited
- Larsen & Toubro Limited - India
- TeaM Sual Corporation - Philippines
- Indo Tambangraya Megah - Indonesia
- Sarangani Energy Corporation, Philippines
- Karaikal Port Pvt Ltd - India
- Power Finance Corporation Ltd., India
- Global Green Power PLC Corporation, Philippines
- Global Coal Blending Company Limited - Australia
- Chamber of Mines of South Africa
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Simpson Spence & Young - Indonesia
- Mintek Dendrill Indonesia
- Eastern Energy - Thailand
- Dalmia Cement Bharat India
- Essar Steel Hazira Ltd - India
- SN Aboitiz Power Inc, Philippines
- The Treasury - Australian Government
- International Coal Ventures Pvt Ltd - India
- Intertek Mineral Services - Indonesia
- Agrawal Coal Company - India
- Kepco SPC Power Corporation, Philippines
- Ministry of Mines - Canada
- MS Steel International - UAE
- CIMB Investment Bank - Malaysia
- IHS Mccloskey Coal Group - USA
- Binh Thuan Hamico - Vietnam
- Edison Trading Spa - Italy
- Petron Corporation, Philippines
- Bayan Resources Tbk. - Indonesia
- Formosa Plastics Group - Taiwan
- European Bulk Services B.V. - Netherlands
- Bharathi Cement Corporation - India
- Bhushan Steel Limited - India
- Economic Council, Georgia
- Kobexindo Tractors - Indoneisa
- AsiaOL BioFuels Corp., Philippines
- Siam City Cement PLC, Thailand
- Gujarat Electricity Regulatory Commission - India
- Sindya Power Generating Company Private Ltd
- Kaltim Prima Coal - Indonesia
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