Coal Futures Make a Promising Debut on Nymex
Coal-futures trading opened for the first time Thursday on the New York Mercantile Exchange, in what some took as a positive sign for the homely commodity that remains the nation’s biggest energy source.
A modest volume of 98 contracts was traded for low-sulfur Appalachian coal, but market players said it was a good start for a contract that Nymex has had in the works for nearly three years.
Prices for September delivery--the earliest delivery date and the most heavily traded contract--closed at $40.75 a ton, down from an opening high of $42.
A contract calls for delivery by barge of 1,550 tons of Central Appalachian coal to the Big Sandy River near Huntington, W.V. Thus, at Thursday’s closing price, a contract is worth $63,162.50.
Even having what passes for an official price is something new for the coal industry.
Traditionally, the consensus spot-market price for coal has been the one reported in the trade publication Coal Daily, which is based on a survey of market participants and can be subject to “spin” by big trading firms, said Vince Stroud, vice president at Aquila Inc., a Kansas City, Mo.-based independent power producer.
“Having a quote-unquote official price is a good thing for the market,” Stroud said.
Coal prices have eased a little from a peak of about $55 a ton last winter, but Thursday’s price is still double that of a year ago. Coal prices--and coal company stocks--benefited from anticipation of the Bush administration’s coal-friendly energy plan.
Coal-fired generators provide about 52% of U.S. energy, and the Bush plan stated that coal is expected to continue as the top power source at least until 2020.
Chris Casale, vice president for trading at Dynegy Inc., said it was encouraging that the Nymex futures trading opened at almost exactly the price at which the over-the-counter cash market for coal had closed the previous night.
Big coal producers and users want the futures market to track the cash market closely so the futures contracts can be an effective hedge against price volatility.
A big question is whether coal futures can build up enough volume to attract pure financial players. Such speculators, who have no intention of taking delivery of coal but trade it merely to profit on price swings, bring liquidity to a market and smooth out volatility.
The “spread” between the bid and asked closing prices on the September contract was a narrow 15 cents, which Robert Levin, senior vice president for planning and development at Nymex, called a sign of a healthy market, especially on opening day.
If the market can build to a volume of several hundred contracts a day and maintain or increase that level over a few months, “then we’ll know we’re being embraced by the industry,” Levin said.
