Hi All,
I have an interview coming up for an options trading role in the coal and freight markets. The last few days have been spent cramming in as much as possible about options theory and the Greeks etc. Now I need to learn about the coal market but this has been surprisingly difficult as I haven’t been able to find much online.
The interview is for the trading arm of a major energy utility company, so I’ll concentrate on thermal coal. I’m trying to find out what the main factors are influencing the price of coal?
From what I’ve learnt so far - and please do correct me if this is wrong – the main factors are:
Demand Side
Coal demand is highly dependent on energy demand, as the majority of power generation in several countries (such as China, India and South Africa) comes from coal generation. In addition, the single largest proportion of world-wide power generation comes from coal generation.
Significant demand from China and India is increasingly accounting for the bulk of worldwide coal usage. Hence, coal demand and consequently coal prices will depend on the strength of the Economic recovery in the emerging markets, particularly China and India as mentioned.
If other forms of power-generation such as gas or oil become expensive, this will increase the demand for coal as an alternative form of energy generation.
As several of the coal commodity currencies (Aussie Dollar, South African Rand and the Columbian Peso) have floating exchange rates, any appreciation in the value of these currencies consequently increases the price for holders of non-commodity currencies. As price increases, obviously demand will fall, depending on how elastic demand is. Therefore, it will be macro-economic factors such as GDP, trade deficit, national debt, inflation, interest rates that can indirectly influence the price of coal. Also, I know the AUD is quite a popular currency for the carry trade, so I’d imagine that the strength of the AUD will be dependent on how popular it remains as a carry trade currency, which in part will depend on the whether interest rates remain low in the US, thereby increasing the popularity of the USD/AUD carry trade pair etc. (This last part could all be rubbish)
Supply Side
Even though coal is a finite resource, supply is not a problem in the medium term as global reserves are still large, and technologies for the extraction and utilisation of coal improve.
If there is anything that is wrong or inaccurate, please do correct me. Also, there is anything significant that I’ve missed, I’d love to know what it is. I feel there should be a lot more for the supply side.
Thanks very much for any help.
I have an interview coming up for an options trading role in the coal and freight markets. The last few days have been spent cramming in as much as possible about options theory and the Greeks etc. Now I need to learn about the coal market but this has been surprisingly difficult as I haven’t been able to find much online.
The interview is for the trading arm of a major energy utility company, so I’ll concentrate on thermal coal. I’m trying to find out what the main factors are influencing the price of coal?
From what I’ve learnt so far - and please do correct me if this is wrong – the main factors are:
Demand Side
Coal demand is highly dependent on energy demand, as the majority of power generation in several countries (such as China, India and South Africa) comes from coal generation. In addition, the single largest proportion of world-wide power generation comes from coal generation.
Significant demand from China and India is increasingly accounting for the bulk of worldwide coal usage. Hence, coal demand and consequently coal prices will depend on the strength of the Economic recovery in the emerging markets, particularly China and India as mentioned.
If other forms of power-generation such as gas or oil become expensive, this will increase the demand for coal as an alternative form of energy generation.
As several of the coal commodity currencies (Aussie Dollar, South African Rand and the Columbian Peso) have floating exchange rates, any appreciation in the value of these currencies consequently increases the price for holders of non-commodity currencies. As price increases, obviously demand will fall, depending on how elastic demand is. Therefore, it will be macro-economic factors such as GDP, trade deficit, national debt, inflation, interest rates that can indirectly influence the price of coal. Also, I know the AUD is quite a popular currency for the carry trade, so I’d imagine that the strength of the AUD will be dependent on how popular it remains as a carry trade currency, which in part will depend on the whether interest rates remain low in the US, thereby increasing the popularity of the USD/AUD carry trade pair etc. (This last part could all be rubbish)
Supply Side
Even though coal is a finite resource, supply is not a problem in the medium term as global reserves are still large, and technologies for the extraction and utilisation of coal improve.
If there is anything that is wrong or inaccurate, please do correct me. Also, there is anything significant that I’ve missed, I’d love to know what it is. I feel there should be a lot more for the supply side.
Thanks very much for any help.
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