Future not certain as JSE readies for coal derivatives

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Chris Sturgess, the JSE's director for commodity derivatives, says the arrival of a coal futures market is good news, especially for junior mining firms looking for transparent prices. Photo: Simphiwe Mbokazi

Johannesburg - The JSE is preparing to roll out South Africa’s first coal derivatives market, which aims to help manage price risks despite doubts about the appetite for the product.

Chris Sturgess, a director for commodity derivatives at the JSE, said yesterday that the arrival of the coal futures market in the new year was good news, especially for emerging mining firms, which would be able to sell their products through inland coal terminals based in Mpumalanga.

The coal futures are designed to enable mining firms, traders and brokers to trade a minimum of 500 tons of thermal coal in rands with a minimum fluctuation of 25c a ton.

“As the JSE team, we are optimistic that this product will introduce new opportunity for the coal industry,” he said.

South Africa exports about 70 million tons of coal a year through the Richards Bay coal terminal, mainly to India and China.

Xavier Prévost, a senior coal analyst at XMP Consulting, said it was unlikely the futures market would take off.

“It’s interesting, but in my view it will not work in South Africa. Our coal players are not the risky kind. Selling ‘in the future’ is probably beyond most of our mines, [which] need to sell now, to survive,” he said.

The JSE and London Commodity Brokers, a privately owned commodity trading company, came up with the idea of a coal futures product about two years ago.

“Established mining houses have already indicated that if there is an opportunity, they will participate in the product. Also, there is value addition for junior miners, who may want to find buyers for their products on a different platform,” Sturgess said.

The launch of the derivatives market was delayed from November to the end of January next year because of the need to find additional JSE-approved inland terminals.

Two of the three terminals that had been identified were in eMalahleni (formerly Witbank) and the third was in Ermelo, Sturgess said.

The quality of the coal for the contracts would fall outside the requirements of power producer Eskom, with specifications set for bituminous coal of uniform quality.

The JSE’s trading fees would be 15c a ton, and physical handling would cost R2 a ton.

Asked about the outlook for the futures, Sturgess said education was necessary to promote the new product.

“It is going to be a slow start. We need to be conservative in the numbers.”

The futures market comes as the government plans to declare some minerals, including coal, as strategic in a bid to control prices and export volumes. - Business Report

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