ASX Says Credit Crisis May Boost Demand for Its Coal Futures

By Angela Macdonald-Smith

Feb. 16 (Bloomberg) -- The Australian Securities Exchange said the global credit crisis may boost demand for its Newcastle coal futures contracts, set to start up in April, as market participants seek the security of a trading guarantee.

Trading in the coal futures should overtake volumes in the physical market in Asia of about 380 million metric tons a year within three to five years, Anthony Collins, general manager for emerging markets at ASX Ltd., which owns the exchange, said today. The exchange will act as the clearing house for the futures, allowing participants to avoid any risk of counter-parties defaulting on trades.

The collapse of U.S. mortgage finance last year led to the worst credit crisis in seven decades, triggering a global recession and a slump in global stock markets. Banks, trading houses and coal buyers in Japan and Europe may use the coal futures, which are due to start trading on April 21.

“All of our futures contracts within the last eight or nine years, around electricity for example, have always done better when there is a credit constraint in the over-the-counter market and that’s absolutely what we have out there today,” Collins said by telephone. “In terms of a global benchmark everyone will look to Asia coal, which is Newcastle, as the reference point.”

The coal futures contract will be based on Japanese-quality thermal coal exported from Australia’s Newcastle port, the world’s biggest export harbor for the fuel. The exchange will compete in coal futures trading against ICE Futures in London, which introduced similar contracts in December.

Renewable Delay

Prices for power-station coal exported from Newcastle have dropped about 60 percent from the $194.79 a ton record reached in the week ended July 4 last year, according to the globalCOAL NEWC index, amid declining demand and a slump in crude-oil prices.

The start-up of the contract will be followed by the introduction of New Zealand electricity futures on April 28 and Victoria state wholesale gas futures on May 5 as the exchange broadens the range of products it offers that may help energy producers and users better manage risks posed by changing prices.

Plans to start up futures and options for Renewable Energy Certificates may be delayed until after an earlier April date pending the passage of legislation on the nation’s proposed renewable energy target, Collins said. Likewise, the timing of the introduction of carbon credit futures will depend on when the legislation is passed, he said.

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