Wednesday July 11, 6:59 pm Eastern Time
Coal Futures To Begin Trading
Coal Futures Will Begin Trading Thursday on the New York Mercantile Exchange
biz.yahoo.com
Yet while more than half of the nation's electricity is derived from coal, analysts are skeptical that Nymex's Central Appalachian futures contract will succeed. For starters, coal has little history of wide price fluctuations, a key ingredient in bringing together buyers and sellers. And of the roughly 1 billion tons of coal burned in the United States annually, 80 percent is bought through long-term contracts, not on the daily spot market. Doubters also contend that Nymex is overestimating the industry's need for coal futures, arguing that power producers are protected from price swings by passing along higher costs to consumers.
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The price of coal per ton doubled in a matter of weeks last winter in some parts of the country, boosting the stock prices of coal companies just as quickly. Also, as more and more states deregulate electricity markets, power providers like Mirant Corp. (NYSE:MIR - news), American Electric Power Company Inc. and Dynegy Inc. (NYSE:DYN - news), won't be able to hide behind laws allowing them to pass on higher costs to consumers. Instead, they will be forced to become more competitive with one another, said Andy Ozley, manager of fossil fuels for Atlanta-based Mirant. ``Welcome to the free market,'' he said. ``The pace of deregulation will encourage more and more activity on the exchange. At least that's the hope.''
The swapping of coal contracts is not entirely new. Energy traders, including Mirant, Enron Corp. (NYSE:ENE - news) and Aquila Inc. [NYSE:ILA - news], helped build an international over-the-counter exchange on which some 1 million tons of coal can switch hands on any given day. Some days, not a single transaction takes place. It takes roughly 1,000 tons of coal to generate 100 megawatts of electricity. Each megawatt is enough power for around 1,000 homes.
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The run-up in coal prices last winter occurred as demand outstripped supply. Coal companies curtailed production and even closed some mines after a mild winter in 2000 at a time when power producers sought a less expensive alternative to natural gas, which had quadrupled in price. Coal produced in the Powder River Basin in Wyoming, for instance, more than doubled to around $11 per ton during a five-week stretch this winter. Since then, prices have stabilized and analysts don't expect that type of volatility again anytime soon. Besides price stability, another impediment to coal futures trading is that, unlike natural gas, U.S. coal varies widely with sulfur content and efficiency ratings. Because of differences in regional air quality standards, the transferability of coal contracts is next to impossible on a national scale, Simons said. |
