ICAP United, Inc. is a subsidiary of ICAP plc, the world's largest interdealer broker. The Group is
active in the wholesale market for OTC derivatives, fixed income securities,
money market products, foreign exchange, energy, credit and equities
derivatives.
ICAP United's staff of over 40 brokers serve over 500 industry clients across the
three major energy market segments; physical energy - crude oils, gasoline,
distillates, jet fuel, coal and emissions; energy derivatives - crude, fuel oil,
natural gas NYMEX swaps, emissions derivatives and coal swaps; and energy
futures - NYMEX floor brokerage, introducing Broker services, and technical
advisory services. To contact the US desk managers,
please hover over one of links below:
U.S. Coal Contacts:
ICAP United – Minimizing price risk in a volatile market
Forecasting the price of coal is dependent on many variables. These include; supply uncertainties, transportation inefficiencies, international coal demand, regulatory constraints, labor disruptions, natural gas and electricity have highlighted the need for an understanding of coal trading and risk management. Additionally the disappearance of the fuel adjustment clause is also forcing utilities to use risk-management tools to handle the generators’ inherent natural short fuel position. More volatile fuel prices, increased international coal demand, uncertainties for new coal powered domestic generation, and trade emission programs in SOx and NOx, increased pressure to work with more efficient inventory levels all contribute to a potentially more active and price sensitive market.
In response to these challenges, an active and growing over-the-counter (OTC) market has developed in coal. Historically, coal buyers and sellers have relied on basic strategies of diversification in an attempt to spread their market risk. While helping to avert some types of risk, such as product delivery, these techniques fail to address basic price risk. Price risk in coal is dependent on so many factors that attempting to mitigate any one still leaves basic price risk untouched. The OTC coal market has developed to serve traders, producers, and consumers of coal with new instruments to hedge against the volatility of price exposure. This market provides both standardized physical coal products and financial hedging instruments, including calls, puts, collars, and swaps, to help manage the risk of price fluctuation.
Nymex Cleared Futures and Standardized OTC Products
A variety of coals trade in the OTC markets however, the majority of the activity is based on the 12,000 Btu/lb Central Appalachian Big Sandy barge coal; the 12,500 Btu/lb Central Appalachian CSX rail coal; and the Powder River Basin 8,800 Btu/lb coal. While all three products trade under a standardized contract in the physical OTC market, they also trade under the contractual and credit guarantee of Nymex. The Nymex CAPP barge contract is a physical futures contract. The CSX and PRB 8800 contracts trade are financial swaps that settle against the Platts OTC Monthly Broker Index. All three Nymex coal products transact in the OTC market utilizing Nymex’s Clearport for trade entry.
The following table lists the coal products and their standardized qualities that trade in the physical OTC coal market.
One-off OTC Products and Structured Transactions
ICAP United has successfully matched buyers and sellers in a vast variety of coals that do not meet the quality, quantity and/or delivery specifications of standardized OTC products. These “off-market” coals, Northern Appalachia rail and barge, Illinois Basin and Western Bituminous, often lack the daily liquidity of the OTC market. Fortunately, United has the industry contacts in place to assure full market coverage. We understand complex and challenging transactions while preserving value for both buyers and sellers.
Standardize Contracts, Terms and Conditions
Our clients recognize the value of OTC transactions as a hedging tool for price volatility, delivery performance and credit guarantee. This “insurance” policy requires bilateral, general terms and condition (GTC) contract language and Master Agreements between the parties. These agreements expedite the trade confirmation process. Examples of these agreements can be found by visiting the
Coal Trading Association (CTA) website, Coal Trading Association. CTA is dedicated exclusively to the needs of traders, risk managers, buyers and sellers within the coal trading industry. CTA mission is to develop policies and maintain contract standards for the coal trading community.
In support to the CTA, ICAP United has conducted and published an independent summary reviewing numerous Master Coal Purchase and Sales Agreements (MCPSA). This
practical guide summarizes ten (10) primary areas covered within the MCPSA and is available from ICAP United. Contact
Dan Vaughn for more information in obtaining your copy.
Fundamental Perspectives, Daily Analysis
While ICAP United’s primary focus is to close buy-sell transactions in a timely, ethical and professional manner, our business activities lead to an array of interaction with every facet of the energy market. Many of our clients desire to take advantage of our market knowledge and seek comprehensive, yet individualized consulting services. These services include assistance and review of sales/revenue projections, verification of market-based offers for internal audits, development of procurement strategies and bid preparation, and working as a buyer’s agent in real-time or traditional energy/coal procurement.