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Who Invests and Trades Coal Futures?

As with other futures, coal futures too are traded by two categories of people: hedgers and speculators.

Hedgers are usually the consumers and producers of coal, who have an actual stake in the delivery of coal and hence, use futures as an instrument to “hedge” or mitigate the risk from price fluctuations.

While coal producers can lock in the sale price of their coal by using a short hedge, buyers of coal (companies who need to use coal in their businesses) can lock in the purchase price of the coal by using a long hedge. Futures can greatly help these hedgers balance their cash flows and plan production more efficiently.

The other category of traders are professional investors, also called speculators. They don’t have any vested interest in coal as a commodity and are only trading futures in order to earn profits from price fluctuations. They buy coal futures if they believe coal prices are set to soar and sell those futures if market data or their analysis leads them to believe that coal prices will fall in the future.

Coal Futures Contracts

Coal futures are traded on the New York Mercantile Exchange (NYMEX) in the U.S. There are various types of futures referring to the location where the coal is from. For instance, Central Appalachian Coal Futures (symbol “QLD”) are listed monthly for 5 consecutive years and are settled physically. A single future contract is of 1550 tons and is quoted in dollars and cents per ton. The coal deliverable under these contracts has to meet certain minimum requirements for Btu, ash, sulphur and moisture.

International Coal Futures Trading

European, Australian and South African coal futures are traded on the Inter Continental Exchange (ICE). These contracts are quoted in U.S. dollars and cents per ton.

ICE futures comprise three contracts for the world’s busiest coal centers: Rotterdam in Europe, Richards Bay in South Africa and Newcastle in Australia. All three contracts are financially settled upon the price of coal delivered to the three locations. The Rotterdam Coal futures serve mainly Atlantic coal market participants, the Richards Bay Coal futures serve the Atlantic and Pacific coal markets and The Newcastle Coal Futures serve the Asia-Pacific coal market.

ICE clears over one billion tons of coal contracts every year—which is estimated to be around half of the market.

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