CME Launches Coal Swap Futures - Analyst Blog
September 02 2011 - 12:20PM
Zacks
Yesterday CME Group Inc. (CME), the largest
U.S. futures exchange operator, announced the launch of two thermal
coal swap futures contracts, China coal swap futures and Coal
Newcastle FOB. The futures will be traded over-the-counter (OTC)
from September 12, 2011.
Accordingly, the two OTC contracts will be financially settled
and will be traded in lot sizes of 1000
tonnes each. CME had earlier cleared 14 other coal swap contracts
and the new contracts will raise the tally to 16.
China is expected to be the major purchaser as the country is
the world’s second largest importer of both thermal and
coking coal. Last year, China had purchased 81.6 million tons of
thermal coal and 44 million tons of metallurgical coal, accounting
for 11.4% and 17.7%, respectively, of global purchases.
Thermal coal is used in power plants while metallurgical coal is
used in the manufacture of steel.
The price of coal has become highly volatile in Asian countries
after the Japan earthquake reduced the demand from the country. It
is expected that China will use the new coal swap futures contracts
as hedging instruments against price volatility and will eventually
also adopt index pricing for buying coal.
Index pricing was launched in Europe five years ago. However,
currently coal buyers are reluctant to use index pricing, but as in
the case of iron ore, the initial resistance is expected to wear
off as index pricing is the natural way forward.
CME carries a Zacks #3 Rank, which translated into a short-term
Hold rating. The main competitors of the company are Nasdaq
OMX Group Inc. (NDAQ) and CBOE Holdings
Inc. (CBOE).
On Thursday, the shares of CME closed at $265.61, down 0.57%, on
the New York Stock Exchange.
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