Related News:
Climate-Control Failures May Send Coal Trading to Record: Energy Markets
Coal trading is poised to rise to an all-time high this year as prices at less than half their 2008 peak stoke demand, defying government efforts to phase out the most-polluting fossil fuel.
The volume of coal derivatives bought and sold around the world may jump as much as 46 percent this year to 2.3 billion metric tons, based on data from exchanges and brokers, according to Guillaume Perret, founder of Perret Associates Ltd. and a former trader at RWE AG, Germany’s second-biggest utility. That would exceed the record 2.2 billion tons traded in 2007.
“It’s looking pretty good for coal,” Kris Voorspools, director of 70Watt Capital Management, a Luxembourg-based hedge fund that specializes in trading spreads in energy and carbon markets, said in an Aug. 24 interview. “It’s the fuel for the developing world. China and India are using it to grow.”
The increase in coal trading underscores how fuel demand in Asia is hampering government measures to tackle global warming. United Nations Climate Chief Christiana Figueres said on June 9 negotiations to extend Kyoto Protocol limits on greenhouse-gas emissions are unlikely to succeed this year. Global coal demand held near a record in 2009, while oil consumption dropped 1.7 percent and natural-gas use fell 2.1 percent, according to BP Plc’s June 2010 Statistical Review.
Taking Advantage
Prices have fallen 55 percent since trading at a record $217.75 a ton on July 1, 2008. Coal for next-year delivery in northwest Europe, the world’s biggest derivatives market for the fuel, was at $97 a ton at 6:16 p.m. in London today, according to broker prices compiled by Bloomberg, 31 percent lower than the 2008 average of $140.40 a ton.
Export prices at Newcastle, Australia, a benchmark for Asia, rose 1 percent to 87.79 a ton in the week ended Aug. 20, according to London-based globalCOAL. Prices at Richards Bay, South Africa, the continent’s biggest export facility for the fuel, fell 0.6 percent to $86.34 a ton, according to data from IHS McCloskey.
The world’s biggest energy exchanges are seeking to encourage trading. Intercontinental Exchange Inc.’s ICE Futures Europe on Aug. 6 began allowing investors to trade coal derivatives with a minimum of 1,000 tons, 20 percent the size of its previous requirement, to attract hedge funds and smaller banks. CME Group Inc. said this week it will start offering four new contracts settled against coal prices.
LCH.Clearnet Group Ltd. plans to offer Richards Bay and Rotterdam coal swaps “soon,” according to Jason LaBrooy, a spokesman in London.
“We expect to see a pick-up in activity into the fourth quarter,” Tris Simmonds, the head of coal trading in London at GFI Group Inc., a New York-based broker, said by e-mail. “LCH and CME offering clearing to the coal market as well as ICE will lead to a more competitive market place for clearing.”
Ambitious Targets
European governments set the world’s most ambitious targets to cut greenhouse gases and wean themselves off coal, which emits about twice as much carbon dioxide as natural gas. The European Commission, the regulator for the 27-nation European Union, set up a cap-and-trade system in 2005 to make polluters pay for carbon emissions. In the U.S., where coal accounts for about 25 percent of energy consumption, lawmakers plan to revive climate-protection legislation after being defeated in Congress last month.
Coal-price declines and the growing use of alternative energy still pose risks for traders.
Some banks and hedge funds “threw in the towel” in 2008 and 2009, Perret, of London-based Perret Associates, a coal, freight and iron-ore adviser, said in an Aug. 25 e-mail.
New exchange-cleared products are easing concern about traders’ creditworthiness, said Adrian Hills, senior market manager for globalCOAL.
New Hiring
“Credit has been the biggest issue to impact trading over the last few years,” Hills said in an Aug. 24 interview.
Gunvor International BV, an Amsterdam-based commodity trader, said in May it hired traders for its coal business. Mercuria Energy Ltd. in Geneva, which buys and sells oil and emissions contracts, added traders in Houston and Jakarta last August after entering the coal business in 2007.
The reduced minimum lots for ICE contracts will probably lure new entrants, including traders seeking to bet on spreads between fuels, European Union carbon allowances and electricity, said 70Watts’s Voorspools.
“The initiative can lead to a boom in liquidity in coal,” said Voorspools, who said he used the new 1,000-ton lot on ICE last week. “Many are interested in coal, but only a few can actually trade it because of the big size.”
Not Needed
The utilities and banks that dominate trading won’t need the smaller lot sizes when hedging risks for entire ships, which can carry as much as 110,000 tons of fuel, according to Clive Murray, chief executive officer at London Commodity Brokers Ltd.
“If you are trying to hedge a whole ship, 1,000 tons is neither here nor there,” he said.
For traders, the flexibility of smaller transactions will offer an advantage, David Peniket, president and chief operating officer of ICE Futures Europe in London, said in an e-mail.
Coal trading on ICE jumped more than fourfold last year to 634 million tons, or about 40 percent of the derivatives market, from 149 million tons in 2008, according to globalCOAL. It was 615 million tons in the first half.
“The total volume of steam coal consumed in the world and the volume of physical seaborne trade continue to increase,” said Perret. Coal-trading will range from 2 billion to 2.3 billion tons this year, compared with about 1.6 billion last year, he said.
To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net
Rate These Stories
Rate this Page