Banks are in coal, hedge funds lie in wait

LONDON (Reuters) - Hedge funds are only likely to participate in coal once it has become a fully liquid commodity, but the banks are already active players, the head of electronic trading platform globalCOAL said on Wednesday.

"Over the last year, we have seen more involvement from the banks," Eoghan Cunningham, Chief Executive Officer of globalCOAL, told the Reuters Global Energy Summit.

Speaking in London, he said Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), Merrill Lynch & Co. (MER.N: Quote, Profile, Research, Stock Buzz) and Australia's Macquarie Bank Limited were involved in physical trade and others were "coming in behind."

"It's partly because of the difference between physical and financial. They can arbitrage," he said.

The other factor was that banks provide finance in the often high-risk coal industry and might wish to hedge positions.

globalCOAL was set up in 2001 by a group of the world's major coal producers, traders and consumers to promote market transparency and liquidity through its on-screen trading platform.

Nine of its 66 members are banks, Cunningham said.

At this stage, he said the coal market was not attractive to hedge funds, but they might use banks as "a sleeve" to enter it.