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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, 28 October 09
INVESTMENT IN MINING SECTOR HAMPERED BY LATE REGULATIONS
The Jakarta Post reported that, Indonesia may have to wait for a potential massive inflow of new investment into the mining sector due to delays in ...
Tuesday, 27 October 09
CHINA'S SEPT. COAL IMPORTS RISE AS ECONOMY RECOVERS
Bloomberg reported that, China, the world’s largest coal user and producer, increased imports of the fuel in September to meet rising domest ...
Monday, 26 October 09
DARWIN EYES PRIVATE INVESTMENT
The Jakarta Post reported that, the new energy and ministerial resources minister, Darwin Zahedy Saleh, has set his sights on accelerating the reali ...
Sunday, 25 October 09
THE FUTURE FREIGHT MARKET IS EXPECTED TO HAVE POSITIVE DIRECTION - VISTAAR
COALspot.com (Singapore): According to Vistaar Shipping an experienced ship operator in Singapore, the BDI shot up this week (19-24 October) by abou ...
Saturday, 24 October 09
NTPC SEEKS ALTERNATE COAL SUPPLY FOR KAHALGAON
State-run NTPC is looking at alternate sources of coal to fire its Kahalgaon (Bihar) and Farakka (West Bengal) and power stations, which are facing ...
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- Siam City Cement PLC, Thailand
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- Bangladesh Power Developement Board
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- Tamil Nadu electricity Board
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- Minerals Council of Australia
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- Indian Oil Corporation Limited
- IHS Mccloskey Coal Group - USA
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- Independent Power Producers Association of India
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- Planning Commission, India
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- Siam City Cement - Thailand
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- Electricity Authority, New Zealand
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- Heidelberg Cement - Germany
- Australian Commodity Traders Exchange
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- Globalindo Alam Lestari - Indonesia
- White Energy Company Limited
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- ICICI Bank Limited - India
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- Economic Council, Georgia
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- Ministry of Transport, Egypt
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- Marubeni Corporation - India
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- Meenaskhi Energy Private Limited - India
- Coalindo Energy - Indonesia
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- Global Business Power Corporation, Philippines
- Power Finance Corporation Ltd., India
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- Australian Coal Association
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- Lanco Infratech Ltd - India
- Chamber of Mines of South Africa
- SMC Global Power, Philippines
- Sree Jayajothi Cements Limited - India
- Bhoruka Overseas - Indonesia
- Therma Luzon, Inc, Philippines
- Sarangani Energy Corporation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Sical Logistics Limited - India
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- SMG Consultants - Indonesia
- Chettinad Cement Corporation Ltd - India
- Kohat Cement Company Ltd. - Pakistan
- VISA Power Limited - India
- Anglo American - United Kingdom
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- Ministry of Finance - Indonesia
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- Bharathi Cement Corporation - India
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- Mjunction Services Limited - India
- Romanian Commodities Exchange
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- Banpu Public Company Limited - Thailand
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- Coal and Oil Company - UAE
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- Africa Commodities Group - South Africa
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- PetroVietnam Power Coal Import and Supply Company
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- Toyota Tsusho Corporation, Japan
- Alfred C Toepfer International GmbH - Germany
- The University of Queensland
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- Ministry of Mines - Canada
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- Bahari Cakrawala Sebuku - Indonesia
- Cement Manufacturers Association - India
- Larsen & Toubro Limited - India
- Billiton Holdings Pty Ltd - Australia
- Price Waterhouse Coopers - Russia
- Global Coal Blending Company Limited - Australia
- Rio Tinto Coal - Australia
- Semirara Mining and Power Corporation, Philippines
- Singapore Mercantile Exchange
- Georgia Ports Authority, United States
- The State Trading Corporation of India Ltd
- Ind-Barath Power Infra Limited - India
- Meralco Power Generation, Philippines
- Port Waratah Coal Services - Australia
- Vedanta Resources Plc - India
- Baramulti Group, Indonesia
- Formosa Plastics Group - Taiwan
- Commonwealth Bank - Australia
- Ceylon Electricity Board - Sri Lanka
- Petron Corporation, Philippines
- Borneo Indobara - Indonesia
- Tata Chemicals Ltd - India
- Rashtriya Ispat Nigam Limited - India
- AsiaOL BioFuels Corp., Philippines
- Global Green Power PLC Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- McConnell Dowell - Australia
- Wood Mackenzie - Singapore
- TNB Fuel Sdn Bhd - Malaysia
- Eastern Coal Council - USA
- Trasteel International SA, Italy
- Orica Mining Services - Indonesia
- Sindya Power Generating Company Private Ltd
- Aditya Birla Group - India
- Aboitiz Power Corporation - Philippines
- IEA Clean Coal Centre - UK
- Interocean Group of Companies - India
- Sakthi Sugars Limited - India
- South Luzon Thermal Energy Corporation
- Goldman Sachs - Singapore
- European Bulk Services B.V. - Netherlands
- ASAPP Information Group - India
- Xindia Steels Limited - India
- Edison Trading Spa - Italy
- Holcim Trading Pte Ltd - Singapore
- The Treasury - Australian Government
- Maheswari Brothers Coal Limited - India
- Directorate General of MIneral and Coal - Indonesia
- Directorate Of Revenue Intelligence - India
- Krishnapatnam Port Company Ltd. - India
- Merrill Lynch Commodities Europe
- Intertek Mineral Services - Indonesia
- CNBM International Corporation - China
- Videocon Industries ltd - India
- MS Steel International - UAE
- Grasim Industreis Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Parry Sugars Refinery, India
- Standard Chartered Bank - UAE
- Binh Thuan Hamico - Vietnam
- Kobexindo Tractors - Indoneisa
- Gujarat Sidhee Cement - India
- Antam Resourcindo - Indonesia
- Riau Bara Harum - Indonesia
- Parliament of New Zealand
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- Bhatia International Limited - India
- Kalimantan Lumbung Energi - Indonesia
- Energy Link Ltd, New Zealand
- SN Aboitiz Power Inc, Philippines
- Bhushan Steel Limited - India
- Maharashtra Electricity Regulatory Commission - India
- Indonesian Coal Mining Association
- Neyveli Lignite Corporation Ltd, - India
- Karbindo Abesyapradhi - Indoneisa
- Renaissance Capital - South Africa
- Eastern Energy - Thailand
- Coastal Gujarat Power Limited - India
- LBH Netherlands Bv - Netherlands
- Carbofer General Trading SA - India
- Mercuria Energy - Indonesia
- India Bulls Power Limited - India
- Latin American Coal - Colombia
- Gujarat Electricity Regulatory Commission - India
- Sojitz Corporation - Japan
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