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Commodities futures on coal

U.S. coal exports, chiefly Central Appalachian bituminous, make up a significant percentage of the world export market and are a relevant factor in world coal prices. Because coal is a bulk commodity, transportation is an important aspect of its price and availability. In response to dramatic changes in both electric and coal industry practices, the New York Mercantile Exchange (NYMEX) after conferring with coal producers and consumers, sought and received regulatory approval to offer coal futures and options contracts. On July 12, 2001, NYMEX began trading Central Appalachian Coal futures under the QL symbol.

In 1996, the New York Mercantile Exchange (NYMEX) began providing companies in the electric power industry with secure and reliable risk management tools by creating a series of electricity futures contracts fashioned to meet the particular regional needs and practices of the power industry. The buying and selling of these futures contracts and the related options contracts have given the industry a much-needed price reference and risk management tool. In the restructured electric power industry, where annual sales nationally are over $250 billion, and price increases can no longer be passed along to customers, the pricing of resources used to generate electricity becomes more important.

Since coal is now the largest single power generating fuel in the United States, the once relatively sedate cash markets for coal have become more volatile and very strong market forces. Thus, electric utilities are no longer eager to enter into long-term coal supply contracts that once were the industry norm. Instead, there is now a preference for short-term and more price-flexible contracts that rely more on cash market purchases as power producers try to reduce their inventory holding levels.
Coal futures provide the electric power industry with another set of risk management options, as well as offer the coal industry new and necessary risk management tools:

  • Coal producers can sell futures contracts to lock in a specific sales price for a specific volume of the coal they intend to produce in coming months.
  • Electric utilities can buy coal futures to hedge against rising prices for their base load fuel.
  • Power marketers can mitigate their generation price risk and hedge with electricity futures to control their delivery price risk.
  • Non-utility industrial coal users, such as steel mills, can use futures to lock in their own coal supply costs.
  • International coal trading companies can use futures to hedge their export or import prices.
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