The Futures Of Coal  

The SMH has a report on a new coal futures contract being introduced - Futures contract to bridge Australia-Asia divide on coal

THE contentious annual benchmark pricing negotiations between Australian miners and Asian steelmakers could soon be a relic of the past if the parties take the lead from the thermal coal market. GlobalCOAL, which has been facilitating over-the-counter trading in the thermal coal market since the start of the decade, is introducing a futures contract based on coal from Newcastle in late September or early October.

Although market participants - including coalminers, commodities traders and utilities - already take part in over-the-counter swaps through globalCOAL, the addition of a futures contract will reduce credit risk exposure and increase liquidity. Increased liquidity could lead to more accurate pricing based on market demand, which is important in a time of highly volatile commodity prices.

"It is a natural step in the evolution of the coal market," said the globalCOAL chief executive, Eoghan Cunningham, citing demand from investment banks, hedge funds and other institutional investors to gain access to coal price performance. "Rather than benchmark pricing, you are going to have more index linking."

The futures product will be traded on leading energy futures and options exchange, ICE Futures Europe. Earlier this year, the Australian Securities Exchange announced plans for a rival futures product, but it has not yet revealed a start date.

While this is speculation, I don’t see it as the same type of situation that we’re seeing in the “regulated,” black boxed commodity markets right now.

If I understand what’s happening in the case below with the iron ore, the speculator doesn’t seem to have any way of manipulating the market that I can see. It’s a bet on the spot price in the future without any delivery of goods required, BUT, and this is the difference, after the speculator enters the trade, he or she MUST face the music at the end of the month, good or bad. Either the iron ore producer wins, or the cash speculator wins AT THE END. There’s no way out during the interim period.

This looks like a relatively fair and square gun battle to me, because the participants, who enter into the deals, are forced to face the consequences, good or bad, in the future.

Unless I’ve really misunderstood something here, this actually looks cleaner than the so called regulated commodity markets. Please correct me if I’m wrong. This is the first time I’ve heard of this type of trade, so I’m sure that there’s a lot that I don’t even know that I don’t know.

Far more disturbing than the cash-settled swaps described below are the hedge funds vertically integrating themselves throughout food production infrastructures. This will give elites unprecedented power to collude in order to create artificial scarcity.