Globalization of Steam Coal Markets An Econometric Analysis

Transcription

1 Globalization of Steam Coal Markets An Econometric Analysis IAEE, 10th European Conference 10 September 2009, Vienna Astrid Cullmann Christian von Hirschhausen Anne Neumann

2 Agenda 1. The Issue 2. International Coal Trade 3. Common Trends Across Regions? 4. Conclusion References - 2 -

3 Why are we interested in Coal Prices? Helps to understand the functioning of regional and global coal markets Coal markets are less transparent than generally thought Regional segmentation, geographically and qualities Changing structure of the market since the 1970s Testing hypotheses and gut feelings - 3 -

4 State of the Literature Cointegration of international coal prices: - Ellermann (1995): US as price setter in global coal market - Ekawan et al. (2006): market integration in early 2000s (no empirical evidence) - Warell (2006, 2008) on steam and metallurgical (coking) coal import prices (no trend towards market integration) - Li (2008): international steam coal market is generally integrated (export prices) - EPRI (2007) global price transmission via freight rates - 4 -

5 Agenda 1. The Issue 2. International Coal Trade 3. Common Trends Across Regions? 4. Conclusion References - 5 -

6 Steam Coal Seaborne Trade and Major Exporters Import Export Source: IEA (2008) - 6 -

7 Different Prices, Different Quality Energy value (kcal/kg) Basis Sulf. % (max) cif ARA 6,000 NAR fob Richards Bay fob Bolivar Freight Rates Atlantic 6,000 NAR ,300 GAR Ash % (max) fob Newcastle fob Gladstone fob Qinhuangd ao fob Kalimantan Pacific Energy value (kcal/kg) Basis Sulf. % (max) 6,300 GAR ,500 GAR ,200 GAR ,900 GAR cif Japan 6,080 NAR cif Korea 6,080 NAR Ash % (max) Cape size: Puerto Bolivar-ARA, Richards Bay-ARA, Queensland-ARA, Queensland-Japan, New South Wales-ARA, New South Wales-Korea Panamax: Puerto Bolivar-ARA, Richards Bay-ARA, China-ARA, Queensland-ARA, New South Wales-ARA - 7 -

8 Agenda 1. The Issue 2. International coal trade 3. Common trends across regions? 4. Conclusion References - 8 -

9 Data Weekly export prices (FOB) Weekly import prices (CIF) Weekly freight rates 33 series, weekly observations from December 2001 until today from Platts Data is collected by interview with reliable traders No standardization undertaken, e.g. according to quality Incomplete matching between price data and freight rates regarding location - 9 -

10 Method: Johansen Cointegration Test - Principal components analysis - Reduce multivariate data matrix to lowest dimensionality by use of orthogonal factor space - Identify groups of variables tested that exhibit similar behavior over the period of consideration - Dickey Fuller Test - Johansen Cointegration Test Long-run impact matrix Rank determines number of cointegration vectors

11 Our Approach Step 1: Cointegration of export prices (fob) Australia (Gladstone, Newcastle), South Africa (Richards Bay), Colombia (Bolivar), China (Qinhuangdao), Indonesia (Kalimantan) Step 2: Cointegration of import prices (cif) Europe (ARA), Japan (Basket), Korea (West) Step 3: Cointegration of freight rates (capesize) To Europe and Asia from South Africa, Colombia, Australia and China Step 4: Regional Analysis Atlantic vs. Pacific Basin

12 Principal Component Analysis: Import Prices Principal Components, eigenvalues and variance Eigenvalue Proportion of variance explained Cumulative Component Component Component N = 288 Component 1 Component 2 Component 3 cif ARA cif Japan cif Korea

13 Freight Rates and (Regional) Residual Fuel Prices

14 Cointegration of Import and Export Prices, Freight Rates - All import prices are integrated - Most export prices are integrated BUT: Colombia, Kalimantan and Quinhuangdao - All freight rates are integrated Cointegration Import prices Cointegration Export prices Cointegration Freight rates System

15 Step 4: Atlantic Basin Adjustment Coefficients CIF ARA *** FOB Bolivar *** FR Bolivar-ARA 0.128*** Lags=6, 382 observations Adjustment Coefficients Adjustment Coefficients CIF ARA *** FOB Richards Bay *** FR RB-ARA 0.294*** Lags=7, 381 observations CIF ARA *** FOB Newcastle *** FR RB-ARA 0.078*** *** indicate significance at 1% level Lags=4, 382 observations Atlantic Basin is an integrated market

16 Step 4: Pacific Basin Adjustment Coefficients CIF Japan *** FOB Gladstone *** FR Q.- Japan 0.198*** Lags=4, 200 observations Adjustment Coefficients CIF Korea *** FOB Newcastle *** FR NSW-Korea 0.023** Lags=4, 308 observations and so is the Pacific Basin

17 Agenda 1. The Issue 2. International coal trade 3. Common trends across regions? 4. Conclusion References

18 Summary and Further Research Import and export prices as well as freight rates, thus markets in the Atlantic and Pacific Basins, are cointegrated Import markets are NOT regionally segmented (Asia and Europe) International transport prices follow long term stable relation Colombia does not belong to the same market, China and Indonesia are not solely based on market decisions Further research: Where is the coal price made What role for steam coal exports from the US Effect of prices and quantities

19 Thank you Contact: German Institute for Economic Research

20 References Bachmeier, Lance J. and James M. Griffin (2006): Testing for Market Integration: Crude oil, coal and natural gas. The Energy Journal, 27(2), Ellermann, Danny (1995): The World Price of Coal. Energy Policy, 23(6), Humphreys, David and Keith Wellham (2000): The Restructuring of the International Coal Industry. International Journal of Global Energy Issues, 13(4), Li, Raymond (2007): International Steam Coal Market Integration. Mimeo, Macquarie University, Australia. Osmundsen, Petter, Frank Asche, and Maria Sandsmark (2005): Is it all Oil? CESifo Working Paper Series No Warell, Linda (2005): Defining geographic coal markets using price data and shipments data. Energy Policy, 33,