Sub-bituminous coal-swap to use McCloskey Index

By Er Audy Zandri

Almost 3 years after the launch of McCloskey Indonesian Sub-Bituminous FOB Marker Index by IHS McCloskey and swap contract in January 2010, finally the Index has made it into the pricing formula of the physical coal contract.

"In the past Indonesian subbituminous coal has been priced on Newcastle Index, which is not really reflecting sub-bituminous market," Zenny Tran of Ginga Petroleum Singapore Pte.Ltd. said in a statement. The company claimed to have concluded a 1 year term contract between RWE Supply and Trading Asia-Pacific Pte Ltd and an unidentified counter party.

The contract was for delivery in Calendar year 2013 at the price of McCloskey Indonesian Sub-Bituminous FOB Marker of the delivery month minus US$ 0.50/mt FOB Indonesia on 4900 Kcal/Kg Net As Received.

"For this trade both counterparties have also used the light version of FACT (Freely Available Commodity Terms for Sales and Purchases of Coal) contract, the contract that has been developed by an independent law firm and contributed by RWE, Peabody Coaltrade, Mercuria Energy Trading and Ginga Petroleum to name a few, over the last few years.

"The contract has been introduced to many industry participants, especially in Asia Pacific and seems to have been well received as it appears to be a rather neutral contract that can be used by both buyer and seller, market conventions have also been integrated in the contract to make it convenient for multiple parties, be it traders, end users, producers or banks. The other advantage the contract offers is that it's not copyrighted and therefore it is freely available for everyone to use to trade coal from multiple origins," Ginga said in a statement.

The contract includes multiple terms including FOB and DAP. Market participants are hopeful that this contract will help promote a robust trading scene, especially here in Asia Pacific.

"With a standard contract traders can take physical positions with much less basis risk of different terms for every transaction," the company said.

The Index linked physical trade also triggered a flurry of swap transactions on the same day in apparent hedging activities by counter parties involved. 120,000mt of Calendar 2013, 75,000mt of Q1-13, 15,000mt of Q2-13 Indonesian Sub-Bituminous swaps changed hands in a span of a few hours after the trade.

Indonesian Sub-Bituminous swap liquidity has been improving steadily over the last 3 years with major coal traders, banks and other players participating in this market, including Cargill International Trading, Mercuria, RWE, Peabody Coaltrade and Standard Bank PLC to name a few.

"It is possible to say now that liquidity is not such a big problem that used to worry many traders 1-2 years ago. This could eventually be the most effective tool to manage the price risk for all parties involving or having exposure to Indonesian coal prices."

Editing by David Mustakim