Selling (Going Short) Coal Futures to Profit from a Fall in Coal Prices

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(community.competitors, customer,law,loss, prices, profit,taxes,wages)
1. Focus only on making a big ___
2.pay employees low ___
3.charge high ___
4.never break the ___
5.avoid paying ___ to the government
6.believe the ___ is always right
7.invest in the local ___
8. Put your ___ out of business
9. Be prepared to make a ___ for at least the first year.

Ответ

Проверено экспертом

1. Focus only on making a big profit

2.pay employees low wages

3.charge high prices

4.never break the law

5.avoid paying taxes to the government

6.believe the customer is always right

7.invest in the local community

8. Put your competitors out of business

9. Be prepared to make a loss for at least the first year

Coal: after the $100 per metric ton boom, how long until the bust?

SINGAPORE (Reuters) – As Australian thermal coal prices hit $100 per tonne on Tuesday for the first time since 2020, the fuel’s rally is now among the commodity’s top-three bull-runs on record.

The bull-run rivals the 2020 Fukushima nuclear meltdown and Australian mining flood spike, and the 2008/09 financial boom and bust. [L4N1CO2XG]

With Australian Newcastle spot cargo prices for November, up almost 100 percent since June to $100 per tonne, their highest since 2020, traders and analysts say a bust is inevitable.

“Of course it’s not going to last. Rising prices are encouraging Chinese miners to raise output and the government, seeing how much prices have risen, has backed down somewhat and asked for an increase in production,” said Ralph Leszczynski of shipping brokerage Banchero Costa.

While Newcastle prices are unlikely to drop back anywhere near annual lows, head of research at Marex Spectron Georgi Slavov believes there is a $20 premium that could be wiped out.

“I certainly believe we are at the top – coal will kill this rally by itself,” he said in reference to higher prices stimulating greater production growth.

However, many believe prices could keep rising until the end of the year or possibly into early 2020 as the winter season fuels demand and miners take time to bring on more production.

The price rally for thermal coal, used to generate electricity, was triggered by a Chinese government decision to cap its mining output, aimed at reining in rampant overcapacity, and which forced its utilities to import more coal.

The intervention cut China’s mining output by around 15 percent “and sent consumers – electricity generators and steel mills – back to global markets to meet the short-fall,” said Gerard Burg, senior economist at National Australia Group.

He does not expect current prices to last “too much longer” as Chinese authorities urge miners to raise output again to control spiralling coal prices.

International exporters are also reacting to higher prices, with Glencore last week announcing it will hire more than 200 workers at its Collinsville coal mine in Australia, which mostly exports thermal coal.

Australia’s Department of Industry and Science expects thermal coal exports from Australia to rise by three million tonnes to 203 million tonnes in fiscal 2020.

FOR NOW, IT’S RED HOT

Vertical price jumps tend to be followed by sharp downward corrections, yet many analysts believe the coming downturn will be more gradual than the rally that preceded it.

“Increasing production comes with a lag as you need to re-hire workers, do training etc,” said Leszczynski.

China and other big importers like South Korea are also short of supplies ahead of winter, which many forecasters expect to be colder than the last two.

Traders also pointed to big price rises for metallurgical coal, which has been hit by outages in Australia. This has also affected thermal coal since both coals tend to come from the same mines.

“There’s a perfect storm in coal markets. Metallurgical coal is red hot, due to outages in Australia and – like in thermal coal – because of soaring Chinese imports,” said a mining investment advisor in Singapore, who spoke anonymously due to the price sensitivity of the matter to his clients.

A somewhat gradual price retreat is mirrored in the forward curve, where Chinese coal futures show a price fall from $85.30 per tonne for November to $71 by April next year, and to $61.15 a tonne in October 2020.

Forward contracts show how much traders are willing to pay today for a product to be delivered at a later stage.

Utilities using coal to generate electricity are already preparing accordingly: a source at a South Korean utility said prices could rise further before tapering off into 2020.

He was therefore trying to avoid the spot market and instead “seeking to buy cargoes for next year’s third and fourth quarters.”

Newcastle coal cargo prices for the third quarter of 2020 are currently priced around $73.25 per tonne, $22.75 below current spot cargo prices.

FALLBACK OPTION

Despite years of policies and carbon taxes designed to banish the polluting fuel from its power generation sector, Europe is witnessing an unlikely coal renaissance that has seen physical prices hit two-year highs.

A domino effect that began with France shutting off several nuclear reactors for tests in recent weeks coupled with unusually low wind farm output in northern Germany has tightened Europe’s power markets, making coal the only fallback option.

Marex Spectron’s Slavov said the coal price upsurge across Europe should be temporary as there is plenty of spare Atlantic production capacity to be brought back, including in Colombia and the United States, where signs of growing output are already apparent, he said.

European API2 physical cargoes for 2020 delivery are now at $70 a tonne, a level not seen since December 2020, while API2 for October closed on Monday at $75.60, reflecting a market structure known as backwardation as spot prices are at premium to those in the future.

The decline in European coal prices further out reflects the belief that current power market tightness in France and Germany is a temporary phenomenon, Slavov said.

Reporting by Henning Gloystein; Additional reporting by Keith Wallis in SINGAPORE, Jane Chung in SEOUL, Jim Regan in SYDNEY, Oleg Vukmanovic in MILAN; Editing by Vyas Mohan and David Evans

Finance English practice: Unit 34 — Futures

  • Complete the sentences below. Use the key words if necessary.
    • Commodity futures

    are agreements to sell an asset at a fixed price on a fixed date in the future. are traded on a wide range of agricultural products (including wheat, maize, soybeans, pork, beef, sugar, tea, coffee, cocoa and orange juice), industrial metals (aluminium, copper, lead, nickel and zinc), precious metals (gold, silver, platinum and palladium) and oil. These products are known as .

    Futures were invented to enable regular buyers and sellers of commodities to protect themselves against losses or to against future changes in the price. If they both agree to hedge, the seller (e.g. an orange grower) is protected from a fall in price and the buyer (e.g. an orange juiced manufacturer) is protected from a rise in price.

    Futures are contracts — contracts which are for fixed quantities (such as one ton of copper or 100 ounces of gold) and fixed time periods (normally three, six or nine months) — that are traded on a special exchange.

    Forwards are individual, contracts between two parties, traded — directly, between, two companies of financial institutions, rather than through an exchange. The futures price for a commodity is normally higher than its — the price that would be paid for immediate delivery. Sometimes, however, short-term demand pushes the spot price above the future price. This is called .

    Futures and forwards are also used by speculators — people who hope to profit from price changes.

    More recently, have been developed. These are standardized contracts, traded on exchanges, to buy and sell financial assets. Financial assets such as currencies, interest rates, stocks and stock market indexes — continuously vary — so financial futures are used to fix a value for a specified future date (e.g. sell euros for dollars at a rate of €1 for $1.20 on June 30).

    and are contracts that specify the price at which a certain currency will be bought or sold on a specified date.

    are agreements between banks and investors and companies to issue fixed income securities (bonds, certificates of deposit, money market deposits, etc.) at a future date.

    fix a price for a stock and fix a value for an index (e.g. the Dow Jones or the FTSE) on a certain date. They are alternatives to buying the stocks or shares themselves.

    Like futures for physical commodities, financial futures can be used both to hedge and to speculate. Obviously the buyer and seller of a financial future have different opinions about what will happen to exchange rates, interest rates and stock prices. They are both taking an unlimited risk, because there could be huge changes in rates and prices during the period of the contract. Futures trading is a , because the amount of money gained by one party will be the same as the sum lost by the other.

  • British English or American English?
    • aliminium
      • British English
      • American English

    • aluminum
      • American English
      • British English

  • Match the definitions with the words below.
    • 1. the price for the immediate purchase and delivery of a commodity — . . .

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