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---------------------- Forwarded by Jeffrey A Shankman/HOU/ECT on 11/06/2000 01:51 PM --------------------------- Jez Peters 10/30/2000 07:49 AM To: Stuart Staley/LON/ECT@ECT, George McClellan/HOU/ECT@ECT, Mike McConnell/HOU/ECT@ECT, Jeffrey A Shankman/HOU/ECT@ECT, Peter Bradley/LON/ECT@ECT, Samuel Grossman/LON/ECT@ECT, Pierre Aury/LON/ECT@ECT, Chris Connelly/LON/ECT@ECT, Riaz Rizvi/LON/ECT@ECT, Manfred Ungethum/LON/ECT@ECT, Sven Becker/FRA/ECT@ECT, John Moran/LON/ECT@ECT, Cornelia Luptowitsch/LON/ECT@ECT, Scott Longmore/LON/ECT@ECT, Tiffany Cochran/LON/ECT@ECT, Elizabeth McCarthy/LON/ECT@ECT, Tom Kearney/LON/ECT@ECT, Stephen Pirozzi/LON/ECT@ECT, Dimitri Taylor/LON/ECT@ECT, Kenny Nicoll/LON/ECT@ECT, Lisa Kent/LON/ECT@ECT, Candace Parker/LON/ECT@ECT, Harry Papadopoulos/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, Katrina Bensadon/LON/ECT@ECT, Jez Peters/LON/ECT@ECT, Kevin McGowan/Corp/Enron@ENRON, Tom Mcquade/HOU/ECT@ECT, Scott Pack/NA/Enron@Enron, Dan Edwards/NA/Enron@ENRON cc: Paul Mead/LON/ECT@ECT, Karolina Potter/LON/ECT@ECT, Meindert Witteveen/LON/ECT@ECT, Louis Redshaw/LON/ECT@ECT, Niamh Clarke/LON/ECT@ECT, Gregor Baumerich/LON/ECT@ECT, Florian Neubauer/LON/ECT@ECT Subject: ARA Coal Mkt Summary MKT SUMMARY The producers did not dissapoint at Coaltrans with evidence as early as Monday afternoon that they had managed to whip up a bullish frenzy amongst most of the industry participants. However the fact remains that fundamentals have changed little in the past month with the same supply issues which served to tighten this mkt over the last eight weeks continuing to keep a firm hold on the market throughout Q4 and Q1 2001. Indeed with the ocean frt market still steeply inverted for the winter versus the rest of the year ( $11 versus $9.50 RBCT/ARA) and with the U.S mkt experiencing a massive squeeze front end (east coast trading $35 fob barge) there is little sign of relief in the short term - Q1 2001 Fob ARA is now trading close to $44 with Jan/Dec 2001 around $43.25. Producers will of course lead us to believe that the origin markets are structured in a steep contango for the remainder of the year, however leaving the issue of mkt consolidation aside there is little in the mkt to justify this - if anything demand in the Far East looks a little shakier with steel orders slowing down and the financial markets under pressure and forecasts for European demand estimate unchanged demand year on year. While a marked sell off for second half of the year is unlikely we see the forward curve on the fob origin side flat going forward rather than contango. This said we cannot preclude a shift higher of absolute prices for the whole curve from where we are today at around $33 Fob South Africa equivalent to $35 - there is still plenty of business to be done for 2001 and my feeling is that consumers will end up buying into it rather than risk the wait and see game - we cannot underestimate the influence on international prices that the cartel hold and even if this is exaggerated it's implication is enuff to create a bullish psychology. SPOT TRADES 150,000mt of Pinang quality from KPC for Dec shipment at $27.60 Fob Indo basis 6000 kcal/kg 160,000mt of Prima quality from KPC for Nov shipment at $30.15 Fob Indo basis 6400 kcal/kg 150,000mt option of Prima quality from KPC - to be shipped latest end June at $30.65 Fob Indo basis 6400 kcal/kg. 2 x 150,000mt Put Options from TXU for April/Sep and Oct/Mar 02 respectively. Strike price is $40.50 basis Amsterdam/ Rotterdam and expiry is Feb 15 and Aug 15. Premium - $0.50 cents. SELLING SIDE British Energy - pitching a 1,3 and 5 year deal to them as an extension to current contract we have with them which runs out end March. Scotts Power - looking to turn present Feb cape commitment from CIF to FOR deal and sell incremental cape for March arrival. H Del C - offering them a 9 year put option basis the SECA. Endessa - we have offered them 4 plus 1 cape business for 2001 based on $31 Fob South Africa. NCSC - looking at doing various geographical swaps and they will be utilising EOL in the next week to hedge some of their implied short position. Heidelberger - offered them a hdymax of South African material CNF Turkey for November delivery at $47.50. Bremen - shud sign within the month an eight year deal with Stadtwerke Bremen supplying them some 850,000mt of generic quality coal on an annual basis. Bewag - currently working an offer to supply 1 million mt for 2001 on delivered stockpile basis ENBW/Neckarverke/Preag - offering Oz material for Nov/Dec just shy of $43 fob ARA. Braunschweig - offered them 3 x 60,000mt for Mar/Jun/Jly delivery into Nordenham at $43.75 cif. Dyckerhoff - offered 4 x 15,000mt of generic South Africa material for April/November delivery at $43.50 fob barge. BUYING SIDE Duiker - Have put various structures in front of Duiker which involves us buying a cape a quarter for 2001 - they are due to get back to us within the next few days. Drummond - offered us a 5 year deal staring in 2002 at $35 Fob Colombia - thanks!! Krutrade - working numbers to put an aggressive multi-year offer in front of Krutrade as they seem to be the movers in the Russian mkt at present - we must establish a decent source of Russian coal within our portfolio to service our Bremen and Bewag business going forward. Anker - talking with them re securing south african stem out of Maputo for 2001 - they are looking at somewhere around the $27 fob Maputo level. Masefield - currently in talks with them to secure some tonnage out of Santa Marta for 2001. Coal Procurement - talking about securing a hdymax shipment per quarter out of Durban for 2001 Currently working with U.S. on finalising numbers for Synfuel supplies for 2001 but currently remain $0.75 - $1.00 apart. We currently have some 50mmt of Colombian coal sitting on the ground in Amsterdan/Rotterdam to sell as fillers into backend of the year and we have the M.V. Cleopatra Dream arriving in Rotterdam on Nov 26 with 143mmt of Australian coal to sell into the mkt. EOL Much of the talk at Coaltrans centred around the press release from GlobalCoal of the intention of the Cartel plus Rio to launch an e-platform which will provide mkts against 3 Fob origin points and an ARA delivery point. Details of operational functionality are scarce and increasingly it looks like this is explained by fact that they themselves do not know but general consensus reckons it will be operational end of first quarter 01. Rather than see this as competition, if successful it could provide us with more access to markets than we have previously had and there shud be some fun and games to be had with the various producers. Total volumes for EOL to date are at 1,700,000mt. We have seen a lot of interest in our options which in not surprising given current mkt conditions as consumers look to hedge themselves with cheap out of the money options. As volatility increases other non-traditional coal players are also entering the mkt to utilise the opportunities which increasingly volatility presents. Next project is to get quotes in Euros and after that we will begin to look at spark spreads via EOL. GAMEPLAN We had a major cuppla weeks on the buying side prior to Coaltrans - 75% of which is owned through optionality out of RBCT at between $30 and $31.50. Additional avenues into South Africa through Maputo and Durban now means that we have a decent portfolio of South African material to add to our Colombian long. Overall our position is some 2.5 million mt long including the latest Indonesian purchases - our efforts now are focused on securing some of the term business which is out there at current numbers - it is difficult to call this mkt in either direction with any certainty and hence we are busy covering any downside potential with a host of put options which the utilities are keen to mkt in this bullish enviroment. After weeks of writing that we need to add other origins to our long portfolio we look in far better shape today with good prospects to add further flexibility in terms of diversity of origins which ultimately reduces our reliance on Drummond. While the mkt in general is still seemingly unable to grasp the true value of an option we will continue to exploit this chink by owning as much flexibility as possible thru physical put and call options. Best Regards Jez
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