Thu Sep 1, 2011
SINGAPORE, Sept 1 (Reuters) - The CME Group will launch two new over the counter thermal coal swap futures contracts, it said on Thursday, in a move seen aimed at tapping a market keen to hedge price volatility, with key buyer China likely to adopt a more flexible pricing mechanism.
The two contracts, China coal swap futures and Coal Newcastle FOB, will have a lot size of 1,000 tonnes each and will start trading on Sept. 12. Both will be financially settled, CME said in statement.
China, the world's second biggest importer of both thermal and coking coal after Japan, bought 81.6 million tonnes of thermal, or power-station coal, in 2010, accounting for 11.4 percent of the global market.
China imported 44 million tonnes of metallurgical, or steelmaking coal, or 17.7 percent of the world market, last year.
Market participants believe China will move towards index pricing and the new swap contract could be used as a tool to hedge price volatility, a coal broker based in Hong Kong said.
"Index pricing is a natural progression - obviously there is a lot of resistance to it, as there was in iron ore. Right now, the coal buyers can never see them buying on an index but it is the way forward.
"More and more Indonesians are proposing moving towards floating prices. The Chinese may get there - it isn't going to be easy. Index pricing started in Europe five years ago. Two years ago no Indians would buy South African coal on the index but now 90 percent are doing so," the broker said.
Contract pricing of iron ore, a key raw material in making steel, moved to a quarterly system last year after global miners abandoned a 40-year custom of negotiating annual contracts with steel mills.
The contract rates are based on average index prices which are provided by industry players including Platts, Metal Bulletin and the Steel Index.
Australia's thermal coal prices, a benchmark for Asia, have fluctuated since the March 11 earthquake in Japan as Japanese demand eased.
Thermal coal on the globalCOAL Newcastle index stood at just over $120 per tonne last week, much lower than the $140 a tonne seen in January, when prices were pushed up by flooding in Australia's eastern Queensland state.
Prices of hard coking coal are around $300 a tonne from about $200 a tonne a year ago, because of logistical bottlenecks and tighter supply due to the flooding that hit top producer Australia earlier this year.
The new contracts would bring to 16 the coal swap contracts cleared by CME. On Monday, Credit Suisse said it had completed the first ever coking coal swap transaction via a new contract, settled against the Platts Australian coking coal index, cleared by CME.
SINGAPORE, Sept 1 (Reuters) - The CME Group will launch two new over the counter thermal coal swap futures contracts, it said on Thursday, in a move seen aimed at tapping a market keen to hedge price volatility, with key buyer China likely to adopt a more flexible pricing mechanism.
The two contracts, China coal swap futures and Coal Newcastle FOB, will have a lot size of 1,000 tonnes each and will start trading on Sept. 12. Both will be financially settled, CME said in statement.
China, the world's second biggest importer of both thermal and coking coal after Japan, bought 81.6 million tonnes of thermal, or power-station coal, in 2010, accounting for 11.4 percent of the global market.
China imported 44 million tonnes of metallurgical, or steelmaking coal, or 17.7 percent of the world market, last year.
Market participants believe China will move towards index pricing and the new swap contract could be used as a tool to hedge price volatility, a coal broker based in Hong Kong said.
"Index pricing is a natural progression - obviously there is a lot of resistance to it, as there was in iron ore. Right now, the coal buyers can never see them buying on an index but it is the way forward.
"More and more Indonesians are proposing moving towards floating prices. The Chinese may get there - it isn't going to be easy. Index pricing started in Europe five years ago. Two years ago no Indians would buy South African coal on the index but now 90 percent are doing so," the broker said.
Contract pricing of iron ore, a key raw material in making steel, moved to a quarterly system last year after global miners abandoned a 40-year custom of negotiating annual contracts with steel mills.
The contract rates are based on average index prices which are provided by industry players including Platts, Metal Bulletin and the Steel Index.
Australia's thermal coal prices, a benchmark for Asia, have fluctuated since the March 11 earthquake in Japan as Japanese demand eased.
Thermal coal on the globalCOAL Newcastle index stood at just over $120 per tonne last week, much lower than the $140 a tonne seen in January, when prices were pushed up by flooding in Australia's eastern Queensland state.
Prices of hard coking coal are around $300 a tonne from about $200 a tonne a year ago, because of logistical bottlenecks and tighter supply due to the flooding that hit top producer Australia earlier this year.
The new contracts would bring to 16 the coal swap contracts cleared by CME. On Monday, Credit Suisse said it had completed the first ever coking coal swap transaction via a new contract, settled against the Platts Australian coking coal index, cleared by CME.
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