ICE Coal Futures, Trading Rotterdam and Richards Bay Coal Futures
Coal is still a major player in world energy markets and ICE Coal Futures offers traders an opportunity for exposure to this important commodity.
Hedgers also use these futures contracts to manage risk on what are normally longer term contracts than for other energy commodities traded on this platform.
The ICE Futures Europe has two coal futures contracts, namely Rotterdam and Richards Bay, named after the largest, single export coal terminal in the world in this South African deep sea port.
You can now subscribe to the free Commodity Universe Ezine below, and get the latest articles on the commodity sector . Just your first name and email. It's as easy as 1-2-3! Worldwide use of coal is primarily as fuel for electricity generation, where it produces steam which drives turbines, and then generators to produce the electricity.
About 75% of over 6 billion tons annual world coal production is used to generate electricity.
ICE Rotterdam Coal Futures and Richards Bay Coal Futures
Launched in July 2006 the ICE Coal Futures contracts, Rotterdam and Richards Bay, can be traded either on the ICE platform or as Exchange of Futures for Physicals or Exchange of Futures for Swaps.
Contracts are quoted in US dollars and cents per tonne and each contract is for a minimum of 5 lots where one lot is 1,000 tonnes of coal.
Contract prices must fluctuate by a minimum of 5 cents per tonne, and there is no maximum fluctuation.
The trading periods available for ICE Coal Futures include 6 consecutive month contracts or 6 consecutive quarters, where they are made up as January-March, April-June, July-September and October - December.
There is also a possibility of trading 5 seasons consecutively, for example, the summer season is April to September, while winter covers October to March. Trading hours are from 0700 to 1700 GMT.
ICE Members are usually members of LCH.Clearnet Limited (LCHC) which acts to guarantee the financial completion of ICE Coal Futures contracts registered with it by clearing members.
Settlement and Delivery of ICE Coal Futures
The Richards Bay Coal Futures contract is cash-settled in such a way that it equals the monthly average API 4 index, as shown in the Argus McCloskey Coal Price Index. This API 4 index is made up of a simple average of the South African Coal Report Europe Spot Price figure, the Richards Bay price published in various Argus publications and the Richards Bay value given in the McCloskey Report.
The formula used to arrive at this API 2 index is a simple mean of two coal price assessments published weekly in McCloskey’s and Argus Media publications, based on a methodology set out by Argus.
Regulation
As a recognised investment exchange (RIE), ICE Futures Europe is regulated by the Financial Services Authority (FSA).
It must also have satisfied a number of other regulatory bodies that participants can access the ICE platform from other overseas jurisdictions, including the USA.
All UK based ICE Futures Members are authorised and regulated by the FSA.
The future for coal
Coal will continue to be traded as a commodity for the foreseeable future, given its significant contribution to electricity across the world.
Apart from the Richards Bay and Rotterdam coal futures contracts traded on the ICE platform, coal futures are also traded on NYMEX.
Top world producers include China, USA, India, Australia, Russia and South Africa, who in 2006 accounted for 78% of total world output.
New processes are being developed to try to burn coal in less polluting ways, and the demand from iron ore smelting for steel production looks set to continue rising going forward.
With economic growth set to remain robust particularly in the emerging economies of China and India, the future looks promising for coal as energy source and for ICE Coal Futures as a means of trading and hedging risk.
ICE Brent, Middle East Sour, WTI
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