* In talks with foreign partners, local utilities -sources
* Trading firm could be located in Singapore -one source
* To start with coal and expand to LNG and uranium -sources
* Plans for futures trading for risk management -sources
(Adds more details and quotes)
By Cho Mee-young
SEOUL, Feb 16 (Reuters) - Korea Electric Power Corp (KEPCO) , state-run utility in the world's No.3 coal buyer South Korea, aims to set up its first coal trading firm in a move that could give a boost to spot market trading in Asia in the face of surging prices.
The proposed firm, due to be set up by the end of 2012, will be based overseas and will possibly be a joint-venture with foreign partners and local utilities, company and industry sources said on Wednesday.
KEPCO may set up the new trading company in Singapore, one person with knowledge of the matter told Reuters. However, a company source said the location has yet to be decided.
The government and president of South Korea, the world's No.2 liquefied natural gas (LNG) buyer after Japan and No.5 crude oil importer, have been calling for various ways to efficiently secure commodities and energy as global prices rally. The country imports almost all its feedstocks for power generation.
The trading firm may signal a shift from the norm of securing large volumes under long-term contracts to buying via the spot market, as more Asian utilities break away from decades-old fixed-price purchases to a flexible trading model to cope with growing price volatility.
"The firm will procure and trade coal from those overseas mines where KEPCO holds stakes to supply local utilities, as so far there has been no coal trading entity for the utilities," said one company official, who declined to be identified because he was not authorised to talk to the media.
He said that KEPCO is in informal talks with foreign utilities and trading firms to be its partners, although major trading companies were excluded so far.
KEPCO has stakes mainly in coal mines in Australia and Indonesia, its two major suppliers, he added.
HERALDS ACTIVE TRADING
Should more utilities enter spot trading, it could herald growing demand for coal derivative products as power companies seek hedging instruments to manage price risks, traders said.
"We plan to eventually expand the firm's procuring and trading products to other raw materials for power generation including uranium and liquefied natural gas," the KEPCO official said.
"At the initial stage, the firm will focus on physical trading, but in the long term, it may trade futures for risk management if trading volumes expand and supplies diversify."
An Asia-based trade source said the proposed trading firm would enable KEPCO not to rely on tenders and that they could buy coal on the open market more easily.
Reflecting the persistently strong prices, annual negotiations between Australian coal producers and Japanese utilities for thermal coal contracts expected to meet or exceed record levels seen in 2008.
"It will mean more liquidity in Asia," said another source based in Singapore.
"Hopefully, we can see more North Asian companies coming to Singapore to trade. So far, the Koreans are definitely the most aggressive in the spot market."
South Korea has five utilities, which are fully owned by KEPCO -- Korea Midland Power Co Ltd, Korea Western Power Co Ltd, Korea East-West Power Co Ltd, Korea South-East Power Co Ltd and Korea Southern Power Co Ltd. KEPCO also fully owns Korea Hydro & Nuclear Power Co Ltd.
In August 2009, Korea East-West Power Co Ltd and trading company LG Corp considered a joint venture in Australia mainly to procure coal in the spot market, industry sources close to the deal said at that time.
The talks have since collapsed, and KEPCO has leaned toward the plan for a coal trading firm, sources said. (Additional reporting by Rebekah Kebede in PERTH and Fayen Wong in SHANGHAI; Editing by Ramthan Hussain,sourced:routers)
Tags:KEPCO, overseas coal trading firm, South Korean news, coal spot market, Singapore