COLUMN-Paper trading needed in Asian coal market, but not coming: Clyde Russell

Thu Feb 21, 2013 2:48am EST
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--Clyde Russell is a Reuters market analyst. The views expressed are his own.--

By Clyde Russell

SINGAPORE, Feb 21 (Reuters) - There is a growing disconnect in global coal markets, with the bulk of paper trading happening in the Atlantic basin, even though the physical market has shifted dramatically to Asia.

In some ways this mirrors the situation in oil markets, where the global benchmarks remain Brent and West Texas Intermediate, even though the vast majority of demand growth comes from China, India and other developing Asian nations.

What is different is that Asian players are active participants in the global oil market, but coal trading in the region is still the preserve of a small number of participants.

While there is little doubt that Asia's coal markets would ultimately benefit from deep, liquid paper trading, it also seems unlikely to happen soon as only one of the key drivers of such a change is in place.

The existing factor is the availability of price indexes, but the one that counts as far as expanding paper coal-trading is concerned is the API8, and it's still relatively new and therefore yet to gain widespread acceptance in the market.

API8 is Argus/McCloskey's index for 5,500 kcal/kilogram NAR coal delivered into south China and it was launched in May 2012.   Continued...