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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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Saturday, 24 October 09
ADANI, MMTC IN RACE TO SUPPLY COAL TO GSECL
Business-Standard reported that, as many as five companies are in fray to supply 15 lakh (1.5 million) metric tonnes of non-coking steam (ther ...
Saturday, 24 October 09
INDONESIA STATE POWER FIRM PLANS TO DELAY COAL SUPPLIES
Indonesia's state-controlled electricity company is negotiating with two coal producing firms to delay plans to supply coal to a power plant in Wes ...
Friday, 23 October 09
MONGOLIA LISTS 8 POTENTIAL BIDDERS FOR COAL PROJECT
Reuters reported that, Mongolia has shortlisted eight potential partners for its huge Tavan Tolgoi coking coal project, according to Temuulen Ganzor ...
Friday, 23 October 09
2010 WILL BE 'BRIDGE YEAR' FOR COAL - CONSOL CHIEF
Mining Weekly reported that, After a difficult 2009, 2010 will likely be a “bridge” year for the US coal industry, followed by improved ...
Friday, 23 October 09
INDIAN GROUP INTERESTED IN MOZAMBICAN COAL
Mining Weekly reported that, India’s leading steelmaker, the Steel Authority of India Limited (Sail), has confirmed that it is seeking to acqu ...
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- Deloitte Consulting - India
- Parry Sugars Refinery, India
- Kideco Jaya Agung - Indonesia
- Directorate Of Revenue Intelligence - India
- Pendopo Energi Batubara - Indonesia
- SMC Global Power, Philippines
- Medco Energi Mining Internasional
- Bayan Resources Tbk. - Indonesia
- Iligan Light & Power Inc, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Latin American Coal - Colombia
- Jaiprakash Power Ventures ltd
- Krishnapatnam Port Company Ltd. - India
- Orica Mining Services - Indonesia
- Energy Link Ltd, New Zealand
- Intertek Mineral Services - Indonesia
- Metalloyd Limited - United Kingdom
- ICICI Bank Limited - India
- Georgia Ports Authority, United States
- Cement Manufacturers Association - India
- CIMB Investment Bank - Malaysia
- Maharashtra Electricity Regulatory Commission - India
- Bangladesh Power Developement Board
- Formosa Plastics Group - Taiwan
- Bhushan Steel Limited - India
- Sindya Power Generating Company Private Ltd
- Romanian Commodities Exchange
- Bulk Trading Sa - Switzerland
- Mjunction Services Limited - India
- McConnell Dowell - Australia
- Xindia Steels Limited - India
- Indian Oil Corporation Limited
- Chettinad Cement Corporation Ltd - India
- Essar Steel Hazira Ltd - India
- Aboitiz Power Corporation - Philippines
- Orica Australia Pty. Ltd.
- Standard Chartered Bank - UAE
- Sarangani Energy Corporation, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Marubeni Corporation - India
- Anglo American - United Kingdom
- CNBM International Corporation - China
- Thiess Contractors Indonesia
- Tamil Nadu electricity Board
- Ministry of Finance - Indonesia
- PNOC Exploration Corporation - Philippines
- South Luzon Thermal Energy Corporation
- LBH Netherlands Bv - Netherlands
- Dalmia Cement Bharat India
- Global Green Power PLC Corporation, Philippines
- Commonwealth Bank - Australia
- Pipit Mutiara Jaya. PT, Indonesia
- PTC India Limited - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- AsiaOL BioFuels Corp., Philippines
- The University of Queensland
- Kumho Petrochemical, South Korea
- Posco Energy - South Korea
- TeaM Sual Corporation - Philippines
- OPG Power Generation Pvt Ltd - India
- Thai Mozambique Logistica
- Mercator Lines Limited - India
- Attock Cement Pakistan Limited
- Power Finance Corporation Ltd., India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Meenaskhi Energy Private Limited - India
- Binh Thuan Hamico - Vietnam
- Australian Coal Association
- Sree Jayajothi Cements Limited - India
- Minerals Council of Australia
- Sakthi Sugars Limited - India
- Siam City Cement PLC, Thailand
- Petron Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Timah Investasi Mineral - Indoneisa
- Rio Tinto Coal - Australia
- Altura Mining Limited, Indonesia
- Eastern Coal Council - USA
- European Bulk Services B.V. - Netherlands
- Ceylon Electricity Board - Sri Lanka
- Kalimantan Lumbung Energi - Indonesia
- Riau Bara Harum - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- India Bulls Power Limited - India
- Borneo Indobara - Indonesia
- Wilmar Investment Holdings
- Wood Mackenzie - Singapore
- GAC Shipping (India) Pvt Ltd
- Directorate General of MIneral and Coal - Indonesia
- Indogreen Group - Indonesia
- Kartika Selabumi Mining - Indonesia
- Energy Development Corp, Philippines
- Bharathi Cement Corporation - India
- SN Aboitiz Power Inc, Philippines
- Economic Council, Georgia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Madhucon Powers Ltd - India
- Coal and Oil Company - UAE
- SMG Consultants - Indonesia
- Oldendorff Carriers - Singapore
- Bhoruka Overseas - Indonesia
- Goldman Sachs - Singapore
- Africa Commodities Group - South Africa
- Bank of Tokyo Mitsubishi UFJ Ltd
- Interocean Group of Companies - India
- Rashtriya Ispat Nigam Limited - India
- New Zealand Coal & Carbon
- Electricity Authority, New Zealand
- Bukit Makmur.PT - Indonesia
- Karaikal Port Pvt Ltd - India
- PowerSource Philippines DevCo
- Leighton Contractors Pty Ltd - Australia
- Bahari Cakrawala Sebuku - Indonesia
- Ministry of Mines - Canada
- Ind-Barath Power Infra Limited - India
- Kaltim Prima Coal - Indonesia
- International Coal Ventures Pvt Ltd - India
- Renaissance Capital - South Africa
- Mintek Dendrill Indonesia
- Maheswari Brothers Coal Limited - India
- Mercuria Energy - Indonesia
- Barasentosa Lestari - Indonesia
- Straits Asia Resources Limited - Singapore
- Tata Chemicals Ltd - India
- Gujarat Electricity Regulatory Commission - India
- Manunggal Multi Energi - Indonesia
- Trasteel International SA, Italy
- The State Trading Corporation of India Ltd
- Kapuas Tunggal Persada - Indonesia
- Banpu Public Company Limited - Thailand
- Baramulti Group, Indonesia
- GVK Power & Infra Limited - India
- Malabar Cements Ltd - India
- Bukit Baiduri Energy - Indonesia
- Gujarat Sidhee Cement - India
- Toyota Tsusho Corporation, Japan
- San Jose City I Power Corp, Philippines
- Price Waterhouse Coopers - Russia
- Makarim & Taira - Indonesia
- Uttam Galva Steels Limited - India
- Asmin Koalindo Tuhup - Indonesia
- Port Waratah Coal Services - Australia
- Sical Logistics Limited - India
- Indonesian Coal Mining Association
- Global Coal Blending Company Limited - Australia
- Indian Energy Exchange, India
- Coastal Gujarat Power Limited - India
- Petrochimia International Co. Ltd.- Taiwan
- Australian Commodity Traders Exchange
- ASAPP Information Group - India
- IEA Clean Coal Centre - UK
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Globalindo Alam Lestari - Indonesia
- Bukit Asam (Persero) Tbk - Indonesia
- Sojitz Corporation - Japan
- Meralco Power Generation, Philippines
- GMR Energy Limited - India
- Central Java Power - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Singapore Mercantile Exchange
- Salva Resources Pvt Ltd - India
- Central Electricity Authority - India
- Vedanta Resources Plc - India
- Miang Besar Coal Terminal - Indonesia
- Bhatia International Limited - India
- Planning Commission, India
- Global Business Power Corporation, Philippines
- Ambuja Cements Ltd - India
- Billiton Holdings Pty Ltd - Australia
- Vijayanagar Sugar Pvt Ltd - India
- Jorong Barutama Greston.PT - Indonesia
- MS Steel International - UAE
- IHS Mccloskey Coal Group - USA
- Karbindo Abesyapradhi - Indoneisa
- Antam Resourcindo - Indonesia
- Eastern Energy - Thailand
- Semirara Mining Corp, Philippines
- Jindal Steel & Power Ltd - India
- Videocon Industries ltd - India
- Therma Luzon, Inc, Philippines
- Coalindo Energy - Indonesia
- Kobexindo Tractors - Indoneisa
- Kohat Cement Company Ltd. - Pakistan
- Star Paper Mills Limited - India
- Electricity Generating Authority of Thailand
- Lanco Infratech Ltd - India
- Parliament of New Zealand
- Alfred C Toepfer International GmbH - Germany
- Agrawal Coal Company - India
- Samtan Co., Ltd - South Korea
- Indika Energy - Indonesia
- Vizag Seaport Private Limited - India
- VISA Power Limited - India
- Siam City Cement - Thailand
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Ministry of Transport, Egypt
- Sinarmas Energy and Mining - Indonesia
- Aditya Birla Group - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Merrill Lynch Commodities Europe
- The Treasury - Australian Government
- Indo Tambangraya Megah - Indonesia
- Carbofer General Trading SA - India
- White Energy Company Limited
- Grasim Industreis Ltd - India
- Simpson Spence & Young - Indonesia
- Heidelberg Cement - Germany
- Edison Trading Spa - Italy
- GN Power Mariveles Coal Plant, Philippines
- Independent Power Producers Association of India
- Cigading International Bulk Terminal - Indonesia
- Chamber of Mines of South Africa
- London Commodity Brokers - England
- Holcim Trading Pte Ltd - Singapore
- Savvy Resources Ltd - HongKong
- Larsen & Toubro Limited - India
- Kepco SPC Power Corporation, Philippines
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