COAL PRICE INDEXES - PUBLICATION IDEA:
Polish hard coal is a basic fuel for the Polish power production, which in turn is the foundation for national economy and country economic development. Generators using coal provide 24-hour energy availability and flexibility, compatible with renewable energy sources. For this reason, transparency and predictability of the coal market is a necessary condition for the energy security of the country. Production of electricity from coal is becoming environmentally cleaner and acceptable at the same time becoming more and more efficient and flexible.
The participants of the Polish market of coal pointed out the need for a reliable and transparent sources of knowledge about coal prices. Market reference price, evaluated using transparent algorithms will facilitate trade decision-making and enable market participants financial risks management. In particular it is provided to the energy sector and banks, which are involved in the process of long-term investment lending.
In the world coal trade, a lot of local and global indicators and indexes of coal indexes have been published, which inform about the market and the commercial value of the raw material, of specified quality and defined delivery conditions. The participants of the Polish market could so far use only indexes and indicators published on the European market e.g. by McCloskey, Platts and Argus. Their use, however, was hampered on the Polish market, because in practice there are only information about current pricing trends in Europe and in the world, but also some conversion formulas were used for recalculating to Polish locations those price indexes listed in the ports of the Netherlands and Belgium e.g. by taking into account transport costs.
Primary role of coal price indexes is their information function, both for the parties to the transaction, as well as for market analysts and observers of the economic development factors. The second important index feature is setting reference price for coal sales contracts, because prices in bilateral contracts are linked to the price indexes of the market more often recently. Price indexes may also serve as underlying in the markets for financial products and derivatives in the futures, forward and swap contracts on the OTC and financial markets. Therefore, indexes may be used as benchmark for hedging contracts.
Towarowa Giełda Energii S.A. and Agencja Rozwoju Przemysłu S.A., in cooperation with the Instytut Gospodarki Surowcami Mineralnymi i Energią PAN in Kraków, decided on a common steam coal price indexes publication of selected specifications in terms of range, sulphur content and caloric value in terms of deals on ex-mine basis provided for the domestic market use.
POLISH COAL MARKET INDEX/POLISH STEAM COAL MARKET INDEX-PSCMI ® is a standard coal index as sold by mines/Coal Company in the domestic market to producers of electricity and heat. Registered with the Office for Harmonization in the Internal Market (OHIM) under No 01358744.
TGE S.A. and ARP S.A. will publish, in parallel, on their websites, two price indexes, energy coal in "steam coal" assortment (in Polish – miał energetyczny). Publication will start with two indexes for specific user groups, but publication of subsequent indexes has been foreseen. For the calculation of indices transactional ex-post data and ex-mine prices (EXW-Ex Works - acc. to INCOTERMS 2012) will be used. The results will be published per unit weight (ton) and per caloric value unit (GigaJoule) calculated as sales volume weighted average.
Transparent, standardized calculation algorithm, transaction volume and data source guarantee quality and reliability, of so prepared information, dedicated to all steam coal market participants.
METHODOLOGY OF INDEX VALUE DETERMINATION:
The ex-post data about the monthly quantities of coal sales (in tonnes) steam coals sales price ex-mine are used out of ARP S.A. database:
-
data about transactions which satisfy the criterion of quality for a given steam coal index are selected from the data pool,
-
transaction volume weighted average price is calculated in PLN/tonnne and PLN/GJ, for selected data,
-
data is process for anonymisation,
-
the share of the specified steam coal group in the overall steam coal transaction volume can be calculated.
POLISH COAL PRICE INDEXES – FACTS AND EXPECTED BENEFITS OF THE PUBLICATION:
-
TGE S.A. and ARP S.A. proposed steam coal price indexes, due to the computation algorithms and methodology, including the volume covered by each index, will be a significant source of information about coal price;
-
Indexes are to show rationalised and algorithm calculated prices, which makes possible estimation and compare the coal production and sale costs among different manufacturers and suppliers, and thus gives the opportunity to demonstrate a producer market competitive advantages;
-
Polish coal price indexes publication will allow you to compare the domestic coal prices to European and global market prices;
-
Having reliable data gives you a chance to take the key tactical and strategic decisions;
-
Coal producers, taking into account the market conditions, will have the opportunity to assess their current and long term costs of coal mining, and take the relevant decisions, including strategic investment decisions or the decision moving their production to other mining walls;
-
Indexes help the seller and the buyer to control and hedge transaction prices, investment risk assessment in various commercial areas, including mine development, electricity generation, evaluation of credit risk by lenders and borrowers;
-
A reliable price index gives you the ability to use indexed prices in long-term transactions, variable in time, converted according to transaction formula agreed upon by the parties, which will increase the financial security of transactions carried out, increasing the attractiveness of the market for buyers and sellers;
-
Using index information, manufacturers and consumers will have the ability to impact directly transaction pricing, taking into account the signals flowing from the market, including also imported coal pricing;
-
Subsequent publication of coal price indexes may invigorate the coal spot market, where there are still large demand reserves;
-
It can be expected that systematic publication of price coal indexes would increase confidence to Polish coal producers, thus a sense of security also, which is a very important decision-making factor in concluding a transaction;
-
Analysis of historical price trends can help you make trading decisions on stocks of coal, e.g. through promotional activities to selected coal demand segments.
ADDITIONAL INFORMATION:
ARP S.A. hosts data necessary for the calculation of steam coal indexes of domestic market, on behalf of the Ministry of Economy. Surveyed data has been protected by statistical confidentiality status and therefore, data has been processed and anonymized to protect the trade secrets of individual entities.
The Polish Steam Coal Market Index is a proprietary trademark, owned by the Industrial Development Agency and the Polish Power Exchange, which, together with The Mineral and Energy Economy Research Institute of the Polish Academy of Sciences in Cracow are co-owners of the calculation methodology for the Polish Steam Coal Market Index.
For the purpose of determining the price index values the following principles have been observed:
-
The rules set out in Chapter 5, Art. 38 of the Public Statistics Law of 29 June 1995, indicating that the statistical information and data possessed in the process of public statistics surveys cannot be published if it is possible to link individual data with economic results of entity's economic activities and to identify data with a specific entity, in particular, if the aggregation is made up on less than three entities or part of one entity is larger than ¾ in the specified information statement.
-
Agreement between the Minister of the Economy and ARP S.A. on the conduct of the Agency's monitoring and tasks related to the operation of hard coal mining sector.