Coal 3 years from real liquidity: globalCOAL

LONDON (Reuters) - The international coal market could be less than three years away from real liquidity in both derivative and physical trading, electronic trading platform globalCOAL Chief Executive Officer Eoghan Cunningham said on Wednesday.

The coal market has been slow to develop compared with other commodities but a variety of factors including worries about security of rival energy sources and increased volatility of power and coal price are encouraging the growth in coal trading.

International spot coal trade annually has doubled over the last 10 years to 600 million tonnes, he said, but this still represents only 10 percent of global trade because the majority is still done under long-term contract.

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.

By the end of this year, it is aiming to launch a coal futures contract with the option of physical settlement on a major international exchange.

"Once we've got our futures contract up and running and it's gained enough liquidity, which should take a couple of years, then players like the hedge funds will be attracted and another leap forward in liquidity can take place," Cunningham told the Reuters Global Energy Summit.

There has been much speculation during the past few years among coal market players as to what ingredients have to be present in order to attract hedge funds to the market and what has kept them away.

The funds' participation is widely predicted to be the catalyst which transforms coal into a truly mature market with the liquidity and transparency of the crude market.

Hedge funds have stayed away from derivative and physical coal trading because the markets have not been sufficiently liquid for them, Cunningham said.  Continued...