ASX Set to List Coal, Gas Futures Starting Next Year

By Angela Macdonald-Smith

Oct. 16 (Bloomberg) -- The Australian Securities Exchange plans to introduce futures contracts for coal, natural gas, and renewable energy credits next year that should help energy companies better manage risks posed by changing prices.

The exchange, owned by ASX Ltd., intends to start trading in the contracts between February and May next year, probably starting with power-station coal for which there is most demand, Anthony Collins, general manager for emerging markets, said today in Sydney.

ASX revived electricity futures in Australia in 2002 and the new contracts will enable energy and financial companies to trade between different fuels through the same market, reducing risks arising from fluctuating prices and carbon costs. The coal futures contract will be based on Japanese-quality thermal coal exported from Newcastle, the world's biggest coal-export harbor.

``In terms of the largest market to service, it's coal; it's coming of age,'' Collins said in an interview following a briefing. ``The timing is very good and everybody wants it, because at the moment, just like the banks don't trust each other because of the counter-party exposure, in the commodity market that's also constraining trade. So, it's the best time to have a cleared market for physical coal.''

Coal futures trading on the ASX may start with 10-15 market participants, rising to ``hundreds if not thousands'' within five years. Trading volumes could rival those in West Texas Intermediate, the U.S. benchmark oil variety, he said.

London Rival

The ASX coal contracts will compete against those planned by ICE Futures in London, which Collins expects will be less popular because they will be settled in cash against trades, bids and offers in the over-the-counter market, instead of in delivered fuel.

``The problem with that is, in the over-the-counter market the liquidity is drying up because of the counter-party issues,'' he said. ``We think that deliverable contracts is a much better specification.''

The coal futures will be monthly contracts each for 1,000 metric tons of power-station coal exported from Newcastle in New South Wales. The ASX has yet to announce the fees for market participants.

New Zealand power futures will be among the more than 20 new products to be listed within the four-month period, Collins said.

The ASX can't give a date yet for the start of carbon futures trading, likely later in 2009, because the timing depends on the Australian government's legislation for the start of emissions trading, Collins said. Australia's proposed carbon trading system, intended to help tackle greenhouse gases blamed for global warming, is due to start on July 1, 2010.

To contact the reporter on this story: Angela Macdonald-Smith in Sydney at amacdonaldsm@bloomberg.net