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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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Friday, 23 October 09
AUSTRALIA APPROVES CHINESE TAKEOVER OF FELIX RESOURCES
* Australia give conditional approval to China's Felix deal
* Chinese owner must list the assets on Australian exchange
Reuters reported that, ...
Friday, 23 October 09
IVANHOE TARGETING 20 MILLION TONS OF COAL OUTPUT IN MONGOLIA
Bloomberg reported that, Ivanhoe Mines Ltd., developing a $4 billion copper and gold mine in Mongolia with Rio Tinto Group, is targeting long-term c ...
Friday, 23 October 09
XSTRATA PLANS $1BN AUSTRALIAN COAL PORT
Xstrata Plc, the world's biggest exporter of steam coal, plans to build a new $1 billion coal port in Australia, it said.
The proposed Balaclava ...
Friday, 23 October 09
MEXICO'S CFE SEEKS 6.24 MLN T COAL FOR 2010-12
Reuters reported that, Mexico's state-owned power monopoly plans to award a tender for 6.24 million tonnes of steam coal in December, according to ...
Friday, 23 October 09
CIL PRICE HIKE LIKELY TO PUSH POWER RATES UP
Business-Standard reported that, May squeeze cement companies’ margins, but the steel sector is unlikely to be affected much.
The upward re ...
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- Edison Trading Spa - Italy
- White Energy Company Limited
- Ministry of Finance - Indonesia
- Coalindo Energy - Indonesia
- Vedanta Resources Plc - India
- ASAPP Information Group - India
- Indika Energy - Indonesia
- PetroVietnam Power Coal Import and Supply Company
- Asmin Koalindo Tuhup - Indonesia
- Mjunction Services Limited - India
- Gujarat Electricity Regulatory Commission - India
- Trasteel International SA, Italy
- Electricity Generating Authority of Thailand
- VISA Power Limited - India
- Mintek Dendrill Indonesia
- Aditya Birla Group - India
- Thiess Contractors Indonesia
- ICICI Bank Limited - India
- Merrill Lynch Commodities Europe
- Bahari Cakrawala Sebuku - Indonesia
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Bayan Resources Tbk. - Indonesia
- Aboitiz Power Corporation - Philippines
- CNBM International Corporation - China
- Sojitz Corporation - Japan
- Energy Development Corp, Philippines
- Madhucon Powers Ltd - India
- CIMB Investment Bank - Malaysia
- Malabar Cements Ltd - India
- Chettinad Cement Corporation Ltd - India
- Essar Steel Hazira Ltd - India
- Minerals Council of Australia
- Global Business Power Corporation, Philippines
- New Zealand Coal & Carbon
- Dalmia Cement Bharat India
- Uttam Galva Steels Limited - India
- Goldman Sachs - Singapore
- Vijayanagar Sugar Pvt Ltd - India
- LBH Netherlands Bv - Netherlands
- The State Trading Corporation of India Ltd
- Bharathi Cement Corporation - India
- Central Electricity Authority - India
- Tamil Nadu electricity Board
- Star Paper Mills Limited - India
- Formosa Plastics Group - Taiwan
- SMG Consultants - Indonesia
- Eastern Coal Council - USA
- GVK Power & Infra Limited - India
- Power Finance Corporation Ltd., India
- Orica Australia Pty. Ltd.
- Kumho Petrochemical, South Korea
- Kapuas Tunggal Persada - Indonesia
- Rashtriya Ispat Nigam Limited - India
- Makarim & Taira - Indonesia
- Petron Corporation, Philippines
- Leighton Contractors Pty Ltd - Australia
- Independent Power Producers Association of India
- Meralco Power Generation, Philippines
- GN Power Mariveles Coal Plant, Philippines
- Grasim Industreis Ltd - India
- Petrochimia International Co. Ltd.- Taiwan
- Straits Asia Resources Limited - Singapore
- Simpson Spence & Young - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Jaiprakash Power Ventures ltd
- Heidelberg Cement - Germany
- Parliament of New Zealand
- Deloitte Consulting - India
- McConnell Dowell - Australia
- Romanian Commodities Exchange
- Anglo American - United Kingdom
- Krishnapatnam Port Company Ltd. - India
- European Bulk Services B.V. - Netherlands
- Central Java Power - Indonesia
- IHS Mccloskey Coal Group - USA
- Kobexindo Tractors - Indoneisa
- Neyveli Lignite Corporation Ltd, - India
- The University of Queensland
- Samtan Co., Ltd - South Korea
- Sree Jayajothi Cements Limited - India
- Holcim Trading Pte Ltd - Singapore
- Energy Link Ltd, New Zealand
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Vizag Seaport Private Limited - India
- MS Steel International - UAE
- Karbindo Abesyapradhi - Indoneisa
- Mercator Lines Limited - India
- AsiaOL BioFuels Corp., Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- GMR Energy Limited - India
- Intertek Mineral Services - Indonesia
- India Bulls Power Limited - India
- Kaltim Prima Coal - Indonesia
- Wilmar Investment Holdings
- Maharashtra Electricity Regulatory Commission - India
- Indian Oil Corporation Limited
- Mercuria Energy - Indonesia
- Bangladesh Power Developement Board
- Thai Mozambique Logistica
- Planning Commission, India
- OPG Power Generation Pvt Ltd - India
- Ind-Barath Power Infra Limited - India
- Larsen & Toubro Limited - India
- Attock Cement Pakistan Limited
- Pipit Mutiara Jaya. PT, Indonesia
- Eastern Energy - Thailand
- Australian Commodity Traders Exchange
- Indian Energy Exchange, India
- PNOC Exploration Corporation - Philippines
- Rio Tinto Coal - Australia
- Bukit Baiduri Energy - Indonesia
- International Coal Ventures Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Pendopo Energi Batubara - Indonesia
- Bhushan Steel Limited - India
- Economic Council, Georgia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Salva Resources Pvt Ltd - India
- Renaissance Capital - South Africa
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Altura Mining Limited, Indonesia
- Orica Mining Services - Indonesia
- Videocon Industries ltd - India
- Africa Commodities Group - South Africa
- Billiton Holdings Pty Ltd - Australia
- PowerSource Philippines DevCo
- Tata Chemicals Ltd - India
- Directorate Of Revenue Intelligence - India
- Kohat Cement Company Ltd. - Pakistan
- Riau Bara Harum - Indonesia
- Price Waterhouse Coopers - Russia
- GAC Shipping (India) Pvt Ltd
- Parry Sugars Refinery, India
- SN Aboitiz Power Inc, Philippines
- Jindal Steel & Power Ltd - India
- Indogreen Group - Indonesia
- Sindya Power Generating Company Private Ltd
- Singapore Mercantile Exchange
- Kalimantan Lumbung Energi - Indonesia
- Chamber of Mines of South Africa
- Latin American Coal - Colombia
- Jorong Barutama Greston.PT - Indonesia
- Wood Mackenzie - Singapore
- Maheswari Brothers Coal Limited - India
- SMC Global Power, Philippines
- Savvy Resources Ltd - HongKong
- Meenaskhi Energy Private Limited - India
- Commonwealth Bank - Australia
- Kartika Selabumi Mining - Indonesia
- Sakthi Sugars Limited - India
- The Treasury - Australian Government
- PTC India Limited - India
- Indonesian Coal Mining Association
- Oldendorff Carriers - Singapore
- Cement Manufacturers Association - India
- Offshore Bulk Terminal Pte Ltd, Singapore
- Coastal Gujarat Power Limited - India
- Australian Coal Association
- Marubeni Corporation - India
- Sical Logistics Limited - India
- Baramulti Group, Indonesia
- Lanco Infratech Ltd - India
- Binh Thuan Hamico - Vietnam
- Global Coal Blending Company Limited - Australia
- Ambuja Cements Ltd - India
- Semirara Mining Corp, Philippines
- Banpu Public Company Limited - Thailand
- Timah Investasi Mineral - Indoneisa
- Directorate General of MIneral and Coal - Indonesia
- Karaikal Port Pvt Ltd - India
- Iligan Light & Power Inc, Philippines
- Coal and Oil Company - UAE
- Bhoruka Overseas - Indonesia
- Alfred C Toepfer International GmbH - Germany
- London Commodity Brokers - England
- Carbofer General Trading SA - India
- Ministry of Transport, Egypt
- Therma Luzon, Inc, Philippines
- San Jose City I Power Corp, Philippines
- Port Waratah Coal Services - Australia
- Manunggal Multi Energi - Indonesia
- Kepco SPC Power Corporation, Philippines
- Antam Resourcindo - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Xindia Steels Limited - India
- Bhatia International Limited - India
- Gujarat Sidhee Cement - India
- Siam City Cement - Thailand
- Cigading International Bulk Terminal - Indonesia
- IEA Clean Coal Centre - UK
- Interocean Group of Companies - India
- Semirara Mining and Power Corporation, Philippines
- Standard Chartered Bank - UAE
- Georgia Ports Authority, United States
- Bulk Trading Sa - Switzerland
- Ministry of Mines - Canada
- Miang Besar Coal Terminal - Indonesia
- Barasentosa Lestari - Indonesia
- Posco Energy - South Korea
- Medco Energi Mining Internasional
- TeaM Sual Corporation - Philippines
- Toyota Tsusho Corporation, Japan
- Globalindo Alam Lestari - Indonesia
- Agrawal Coal Company - India
- Metalloyd Limited - United Kingdom
- Global Green Power PLC Corporation, Philippines
- Gujarat Mineral Development Corp Ltd - India
- Sinarmas Energy and Mining - Indonesia
- Borneo Indobara - Indonesia
- South Luzon Thermal Energy Corporation
- Bukit Makmur.PT - Indonesia
- Kideco Jaya Agung - Indonesia
- Sarangani Energy Corporation, Philippines
- Electricity Authority, New Zealand
- Bukit Asam (Persero) Tbk - Indonesia
- TNB Fuel Sdn Bhd - Malaysia
- Siam City Cement PLC, Thailand
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