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INTERVIEW-Japan's Chubu coal trading unit targets new Asian power plants
June 5, 2012 / 6:12 AM / 5 years ago

INTERVIEW-Japan's Chubu coal trading unit targets new Asian power plants

* Chubu unit eyes coal sales to Vietnam, Thailand

* CET now selling 1 mln tonnes of coal to third-parties

* Sees new pricing index for East Asia

By Fayen Wong

NUSA DUA, Indonesia, June 5 (Reuters) - Chubu Electric Power (9502.T), Japan' s No. 3 power utility, wants to expand its coal trading business to other utilities in Asia and is pursuing sales to new power plants in countries such as Vietnam and Thailand, a top company official said.

Chubu's plan marks the first time a Japanese utility is adopting a strategy of looking overseas to trade coal, breaking ranks with a notoriously conservative group that usually prefers to buy through long-term contracts.

Chubu set up a coal trading unit, Chubu Energy Trading

(CET), with France's EDF in December 2007, which was responsible for buying half of Chubu's annual coal consumption through the spot market when it first began operations.

But the unit's annual trading volume has doubled to 11 million tonnes, accounting for Chubu's yearly consumption of 10 million, with another 1 million sold to Japanese industry, independent power plants and some South Korean utilities, Yuji Kakimi, chief executive officer of CET, said in an interview.

"We are eager to expand our third-party business and start selling to other Asian power plants," Kakimi told Reuters on the sidelines of the Coaltrans conference in the Indonesian beach resort of Bali late on Monday.

"We are pursuing opportunities to supply delivered coal to new independent power plants planned in countries such as Vietnam and Thailand."

Although Japan is the world's second-largest buyer of thermal coal after China, shipping in 101 million tonnes last year, Kakimi said Japan remains a tough market to crack.

"Some Japanese utilities are still very conservative and prefer to buy under annual term contracts," he said. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Coal price graphic: here ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

ASIAN COAL PRICING

Japanese power utilities typically buy coal under long-term contracts, which are usually large-volume, take-or-pay deals with the delivery price fixed annually through negotiations with producers and influenced by globalCOAL's Newcastle price index.

CET, which moved its head office to Singapore in April, also trades in bulk freight and paper for coal and freight.

As part of its efforts to secure cheaper coal, CET has begun a trial using some sub-bituminous coal at its 4,100 megawatt Hekinan power plant in Nagoya.

"We are blending the material with bituminous coal as a trial. This can allow us to broaden the spectrum of coals that we can burn," Kakimi said.

While utilities and Japan and South Korea now use globalCOAL's Newcastle price index as a reference when negotiating term prices, Kakimi said the emergence of China as a major spot buyer would change the way prices were set.

"In a few years' time, I believe there will be an Asian based CIF (cost, insurance and freight) Index, similar to the ARA Index in Europe, which sets the price for landed coal in Europe," Kakimi said.

Annual coal imports by China, the world's largest buyer of spot coal, grew 11 percent last year to reach 182 million tonnes.

However, late last month traders said Chinese buyers were deferring or had defaulted on deliveries of coal and iron ore following a drop in prices, as data showed the economy cooling more quickly than expected.

China's industrial output growth slowed sharply in April and fixed asset investment, a key driver of the economy, hit its lowest in nearly a decade, crimping appetite for commodities. [ID:nL4E8GL1BS]

The ARA index is the primary price reference for physical and over-the-counter (OTC) coal contracts for western Europe, allowing utilities and trading houses to hedge against price risk.

Having a similar CIF index for Asia will also encourage the growth of more derivative instruments for hedging.

"Given the significance of Chinese demand, I believe the Chinese CIF coal transactions will likely become a candidate for an East Asian CIF price index," Kakimi said.

(Editing by Clarence Fernandez) Keywords: INDONESIA COALTRANS/CHUBU

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