a. Demand and Supply in Coal
b. Physical Trading
c. Financial Trading
Comparison of Primary Energy Sources in 2005
Percentage Hardcoal usage over different Industries in the EU-25 in 2005
Development of Global Coal Consumption (1965 - 2005)
Development of Global Coal Consumption (1990 - 2030)
Development in Europa: loss of 100.000 MW
Decommissioning of Capacity in Europe* (2005 - 2020)
Minimal Capacity Reduction:
~ 100.000 MW
a. Nuclear 45 years
b. Hard Coal / Lignite 45 years
c. Oil / Gas 50 years,
CCGT 40 years
Maximum Capacity Reduction:
~ 200.000 MW
a. Nuclear 40 years / Phasing Out
b. Hard Coal / Lignite 40 years
c. Oil / Gas 40 years, CCGT 35 years
New Powerplants in Germany
Situation of hard coal in Germany (- 2010)
Regional Dispersion of Hard Coal in the World
(stand 2004, 785 bln. T. Reserves)
Qualities of Coal: There is not one commodity
Coal from different mines are different in:
a. Heating Value
b. CO2 content
c. SO2 Content
d. Moist
e. Ashes
f. Etc.
Buyers of coal often have specific preferences, depending on:
a. Burning facilities
b. Government / EU Regulations
c. Availability of Storage facilities
d. Etc.
Freight
1. Worldwide freight market …
a. ca. 685 Capesize ships (130.000 – 180.000 t)
b. ca. 1.348 Panamaxsize ships (60.000 – 80.000 t)
c. ca. 4.195 Handymax & Handysize ships (10.000 – 59.000 t)
2. …Carrying approximately
a. 2/5 Coal and 3/5 Iron Ore with Capes
b. 40 % Coal, 30 % Crop, 15 % Iron Ore with Panamaxes
3. Physical freight market more short-term oriented
4. (Financial) Forwards on exposures further out
Seaborn Coaltrade in 2005
Important Players in the Physical Market
1. Big Four
a. Xstrata / Glencore
b. BHP Biliton
c. Anglo American
d. Rio Tinto
2. China
a. China Coal Company
b. Vinacoal
c. Shenhua Group
d. Shanxi Group
3. South America
a. Drummond
b. Cerrejon Coal Company
4. Eastern Europe & former USSR
a. Weglokoks
b. Suek
c. Krutrade
5. South East Asia
a. Banpu
b. Adaro
c. KPC
d. Arutmin
Estimates of Trade Volumes for Physical Coal Market
World Coal Trade Volumes (Foreign Trade) - Coking and Steam Coal
API#2 Index Market
1. One „average“ Coal Contract, proxy for all seaborne Coal into Western / North Europe
a. 6000 kcal/kg
b. CIF delivered to ARA (Amsterdam, Rotterdam or Antwerpen)
c. 1 % sulphur NAR
2. Average of oral / telephone surveys done by Argus and Mc Closkey on prices paid for coal with delivery in the next 90 days over 40 market participants
3. Also in Index: deliveries into France, Denmark, Germany, UK netback for freight
4. Like API #2 there is also a API #4 market for South-African Coal
Swaps on the API Index
Advantages:
a. No handling / logistics
b. Decoupling pricing question from quality issues
c. "Hedge“ for more grades of Coal (with a basis risk)
d. Standard size per trade much smaller compared to the physical market
e. Standard contract
Disadvantages:
a. Index settlement is not always transparent
b. Premiums / Discounts for a specific grades of Coal are not hedged
Trading options (1):
Power-producer hedging his power sales
a. Power producer profits depend on margin between producing costs (eg. coal) and power proceeds
b. Coal: dark spread, gas: spark spread
c. Power sales-volume also depend on spread levels
d. Every day a make-or-buy decision, some sales will be bought back when spark- and dark spread falls
e. To hedge those profits our producer needs to be able to act quickly, in flexible volume and without any logistics / issues
Trading options (2):
Coal producer that wants to be exposed to Spot prices
a. Producer holds the view that he cannot beat the market, thus wants to leave its price-exposure open
b. Physical customers however, are interested in fixed forward prices
c. Every time the producer sells “fixed” (physical) to customers he buys the corresponding API#2 contract to reach the preferred exposure
Trading options (3):
Coal producer wants to open an new mine
a. Coal producer wants to open an new mine and needs financing
b. Bank wants security of income stream throughout the investment lifecycle
c. Physical Market does not trade this far out (usually)
d. In the financial market there are more parties with a risk appetite to take on those risks (“at a fee”)
e. Producer sells forward (say 5 years) part of his production to the Financial participant to satisfy the bank
Players in Financial Market
a. Banks (Deutsche, BNP Paribas, Morgan Stanley, etc.)
b. Utilities (EDF, RWE, NUON, E.ON, etc.)
c. Producers (BHP-Billition, Cargill, Glencore, etc.)
d. Trading Houses (Constellation, Sempra, Foundation etc)
Marketplaces
a. Brokers
b. Voice / screen broking,
c. Most trades on bilateral credit / contracts
d. Clearing possible (eg. via European Energy eXchange)
Exchange
a. Standard contract
b. No voice assisted trading, incl. clearing
c. Example EEX, NYMEX, ICE
Estimates of Trade Volumes for Financial Coal Market
Trade Volume for the API#2 and API#4 Swap Market
