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SGX launches new "M42" Indonesian Coal contracts

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World Coal,

SGX's continues to broaden the suite of bulk commodity products with the launch of "M42" Indonesian Coal contracts on 9 April 2018. M42 Indonesian Coal contracts will be indexed off the IHS McCloskey 4200kc GAR FOB Marker, which has met IOSCO international standards for methodology transparency and consistency.

Thermal coal remains an important part of the energy mix for many of the world's fastest growing economies, especially in Asia Pacific, and it currently accounts for roughly 40% of energy consumption in emerging markets. Key growth markets including China, India and southeast Asia have driven the appetite specifically for Indonesian low rank coal, and as a result, Indonesia has become the largest exporter of thermal coal in the world, with over 380 million t of total coal exports in 2017 and 100 million t of low rank coal production in 2017.

The demand and supply dynamics within the market have led to a growing need for appropriate risk management tools. Historically the most widely traded Indonesian coal grade has lacked a representative index, meaning the market has run a large basis risk in hedging against what are fundamentally unrelated coal indices.

The introduction of SGX's M42 coal contracts meets this growing gap in the market and will provide market participants with a much improved hedging tool for both low rank and Asian coals with reduced basis risk.

"The financialisation of Indonesian coal markets is a testament to the evolvement of the physical market and will be of major value to the coal market,” stated Ashish Srivastava, Rex Commodities.

"The advent of 4200 GAR coal derivatives is a long waited, and a welcoming step in the development of the Asian coal market," said Prakash Rajoo, Engelhart Singapore.

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