NYMEX coal contract begins with 98 trades

By the OGJ Online Staff

HOUSTON, July 12 -- Trading in the long-stalled New York Mercantile Exchange Inc. coal futures contract began Thursday with 98 contracts changing hands by the close of the market.

NYMEX spokeswoman Nachamah Jacobovits said the exchange was "reasonably pleased" with the first day's results. Most observers don't expect a high level of liquidity at the outset of the market.

NYMEX first began work on the contract 3 years but delayed introducing it until now. Observers said the delay appeared to be result of a slow start for NYMEX electricity contracts.

"Choice is good," said a spokesman for Dynegy Inc., which buys and sells coal on line and is active in the over-the-counter market.

Interest in the coal futures contract perked up after 900 coal contracts were traded in one day on the over-the-counter market last September. That was a big increase and showed there was a need for a financial instrument to lay off risk, said Thad Huetteman, a consultant and president of Power & Energy Analytic Resources Inc., in Atlanta, which markets an analytic tool for mark-to-market accounting in coal-power market positions.

Up to now, the market has used the so-called "NYMEX look-alike" contract as a reference product to trade against. NYMEX contract specifications have become an industry standard for cash and over-the-counter trading. OTC trading has dropped back down to 5-10 contracts/day, Huetteman said, from 300-400/month last fall when rising gas prices helped drive up coal prices.

Most coal is sold under long-term contracts that are tailored to the needs of specific buyers. That dampened volatility, but Huetteman said he expects volatility to increase in the future and people will want to lay off some of the risk. That should help spark interest in the futures contract.

Traders said the market is still in the transition stage, as long-term coal contracts expire, but it is growing. Coal is generally quoted on a quarterly basis going forward and as a 12-month strip in the OTC market.

Three coal products are being actively traded, two in the West and one in the East. The NYMEX look-alike contract traded in the East is a 1% sulfur 12,000 btu Appalachian coal barge product with a trading area on the Ohio River near at Big Sandy.

The other two are Powder River Basin coal products transported by rail. One is 8,800 btu and the other is 8,400 btu. Some puts and calls, straddles, and swaps also are being traded, traders said.

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