Globalization of Steam Coal Markets Fact or Fiction?

Transcription

1 Globalization of Steam Coal Markets Fact or Fiction? Enerday, 03 April 2009 Astrid Cullmann Richard Morse Christian von Hirschhausen Anne Neumann

2 Agenda 1. The Issue 2. International Coal Trade 3. Common Trends Across Regions? 4. Conclusion References -2-

3 Why are we interested in Coal Prices? Helps to understand the functioning of regional and global coal markets Coal markets are less transparent than generally thought Testing hypotheses and gut feelings 1) Integration of global coal prices - Central App., Colombia, RB, Newcastle 2) Relation between steam coal natural gas oil - coal and natural gas used in electricity generation - oil as the natural benchmark given its liquidity? 3) What is driving coal prices? - what is the reference price (Central App. for US, RB, Newcastle for Europe?) -3-

4 State of the Literature Cointegration of international coal prices: - Warell (2006, 2008) on steam an metallurgical (coking) coal - Li (2008): International steam coal market integration ( international steam coal market is generally integrated ) Price convergence on energy commodities - Asche et al. (2008): Is it all oil? - Bachmeier and Griffin (2006): integrated international oil markets; split in US natural gas prices, weak integration of oil, natural gas and coal prices in the US Spot and contract markets in (U.S.) steam coal - Wolak (1995): increasing integration of spot and contracting market prices -4-

5 Agenda 1. The Issue 2. International Coal Trade 3. Common Trends Across Regions? 4. Conclusion References -5-

6 Steam Coal Seaborne Trade and Major Exporters Import Export Source: IEA (2008) -6-

7 Different Prices, Different Quality Energy value (kcal/kg) Basis Sulf. % (max) cif ARA 6,000 NAR fob Richards Bay fob Bolivar fob Bolivar Poland Baltic Russian Baltic Atlantic 6,000 NAR ,300 GAR ,450 GAR ,300 GAR ,400 GAR Ash % (max) fob Newcastle fob Gladstone fob Qinhuangd ao fob Kalimantan fob Kalimantan Russian Pacific Energy value (kcal/kg) 6,300 GAR 6,500 cif Japan 6,080 Pacific Basis Sulf. % (max) GAR 6,200 GAR ,900 GAR ,000 GAR ,300 GAR NAR cif Korea 6,080 NAR Ash % (max)

8 Agenda 1. The Issue 2. International coal trade 3. Common trends across regions? 4. Conclusion References -8-

9 Data Weekly export prices (FOB) for Newcastle and Richards Bay, August 2000 October 2008, McCloskey s ARA Newcastle Richard's Bay Quarterly steam coal import prices (CIF) by origin, Europe (from Australia and South Africa), Japan (from Australia, South Africa), , IEA Transport Costs: marine bunker spot prices, to Europe and Asia, , IEA -9-

10 -10- Method: Error Correction Model t k t i n k k k t j n k k t t i p p z p ε β α γ + Δ + Δ + = Δ = =, 1 ', 1 ' 1, 1, ' 1, 1 = t j t i t p b a p z Adjustment coefficient Deviation from equilibrium Dickey Fuller Test shows first difference stationary time series

11 Our Approach Step 1 Cointegration of weekly spot prices (export, fob)? Australia (New Castle) and South Africa (Richards Bay) Step 2 Cointegration of quarterly import prices (cif)? Europe from Australia and South Africa; Asia from Australia and South Africa Step 3 Cointegration of quarterly marine bunker spot prices? To Europe and Asia Step 4 Descriptive Analysis of differences in import prices and transport prices -11-

12 Step 1: Cointegration Newcastle and Richards Bay Cointegration Equation Error Correction Model D(LNC) Estimated Coefficient Standard Error T-Stat Cointegration Spot prices Cointegration Import prices Cointegration Import regions Transport costs -12-

13 Step 2: Cointegration of Import Prices ECM D(L_EA) ECM D(L_JSA) ECM D(L_ESA) Coint. Equ. Estimated Coefficient Coint. Equ. Estimated Coefficient Coint. Equ. Estimated Coefficient Standard Error Standard Error Standard Error T-Stat T-Stat T-Stat * Also holds for imports from Australia Cointegration Spot prices Cointegration Import prices Cointegration Import regions Transport costs -13-

14 Step 3: Cointegration of Marine Bunker Spot Prices Cointegration Equation Error Correction Model D(L_MBE) Estimated Coefficient Standard Error T-Stat Cointegration Spot prices Cointegration Import prices Cointegration Import regions Transport costs -14-

15 Step 4: Differences in Import and Transport Prices Difference import prices (from Australia) Difference marine bunker spot prices (to Europe and Asia) -15-

16 Agenda 1. The Issue 2. International coal trade 3. Common trends across regions? 4. Conclusion References -16-

17 Summary and Further Research Short term delivery prices, thus markets in South Africa and Australia, are cointegrated However, regionally segmented import markets (Asia and Europe) International transport prices follow long term stable relation Further research: Reasons for price differences in import costs across regions Where is the coal price made Include Atlantic basin and use of daily data. -17-

18 Thank you. German Institute for Economic Research

19 References Bachmeier, Lance J. and James M. Griffin (2006): Testing for Market Integration: Crude oil, coal and natural gas. The Energy Journal, 27(2), Ellermann, Danny (1995): The World Price of Coal. Energy Policy, 23(6), Humphreys, David and Keith Wellham (2000): The Restructuring of the International Coal Industry. International Journal of Global Energy Issues, 13(4), Li, Raymond (2007): International Steam Coal Market Integration. Mimeo, Macquarie University, Australia. Osmundsen, Petter, Frank Asche, and Maria Sandsmark (2005): Is it all Oil? CESifo Working Paper Series No Warell, Linda (2005): Defining geographic coal markets using price data and shipments data. Energy Policy, 33,