New commodities trading company Javelin Global Commodities is aiming to ramp up its coal trading activities to grab market share vacated by retreating banks and utilities. Javelin hopes to boost its coal trading volumes to between seven and eight million tonnes in 2016, from the three million tonnes traded in the company's first six months of operation, chief executive Peter Bradley said in an interview with Reuters.
By comparison, commodity trader Trafigura [TRAFG.UL] traded 35 million tonnes in the twelve months to Sept. 30, while the world's largest independent energy trader Vitol [VITOLV.UL] had contracted coal sales of 20 million tonnes in 2015.
London-based Javelin launched in June and is 34 percent owned by U.S. coal miner Murray Energy, 28 percent owned by German utility E.ON and 38 percent owned by its principal traders, some of whom were previously at Goldman Sachs.
Javelin's owners have been instrumental in the firm's rapid progress, Bradley said.
"Murray Energy gives us the market access to clients that typically would take a while to get in the coal space and then E.On gives us the tools to execute against customer requirements because they have the balance sheet and provide us the credit lines to be able to trade and manage customer positions."
Privately-held Murray Energy, the largest underground coal miner in the United States, markets its coal globally via Javelin.
Bradley, previously head of bulk commodity trading at Goldman Sachs, said Javelin was also looking to expand into physical iron ore trading, as well as U.S. coal or gas power generation assets and logistics such as ports.
"The coal generation industry globally is going to be a tough business which creates opportunities because there's a real desire and need to change – it's change or die," said Bradley.
"We've got a natural angle to be active in the U.S. power market because of the work we're doing with Murray… but it would be more around a structured trade for Murray if they were selling coal linked to power or gas, or for us to make an investment in a power station."
The coal mining industry has been under pressure from several years of falling prices, while coal power generators have suffered from shrinking margins and increasingly strict environmental regulations in some parts of the world.
U.S. power companies are expected to retire or convert almost 11,000 megawatts of coal-fired plants in 2016 as cheap natural gas from record shale production has kept power prices low, making it uneconomic to upgrade older plants to meet federal and state environmental rules.
Bradley forecast gas prices would remain low for the next two to four years, as a result of the boom in liquefied natural gas (LNG) supply, while he expected European coal prices would bottom in 2016.
"European API2 coal could go down more from these levels, but longer term if you take enough production out of Indonesia and we're going to see another reduction of Indonesian exports this year, you need to suck more coal from the Atlantic and I think that's what's going to produce a floor around coal prices, so I think they'll bottom this year," Bradley said.
Reporting by Sarah McFarlane; Editing by Mark Potter