Coal Matrix Methodology
1. INTRODUCTION
Since implementation and launching of our own Indonesia Coal Information Management Plan (ICIMP) in 01 October 2010 we further conduct extensive research and study about the whole coal market situation in particular Indonesian origin coal catering and targeting mainly to Small and Medium Enterprise (SME).
During this process, we realized that the coal industry in general is providing information on benchmark price in a form of coal index, in general, from large producers of coal or trading houses. Although this benchmark price or index from this category of suppliers are useful indicator of the coal price trend, it do not actually provide a prospective buyer or end user any idea on price trend from SME coal producers and trading houses.
There are no accurate and standard benchmark index catered specially for SME producers and trading houses for market players, miners and buyers to refer to. There is also no dependable indicator or index for prospective buyers or end users to rely on when they are considering buying from a particular SME miner or trading house. Currently, the only way for prospective buyers / end users to know the price from SME miner or trading house is by getting quotation and offer from as many prospective suppliers as possible to get reference from, before making any decision. This method to observe and monitor price trend for SME miner and trading house is not productive as coal price, like other minerals & commodities, are volatile where price changes fast due to various reasons and many factors.
We also observe that the current coal index are generally providing benchmark price based on GAD 6300 Kcal/Kg or NAR 5500 Kcal/kg grade of coal. There are no indexes that provide a benchmark price for various grade of coal from low calorific value to high calorific value with price index or indication based on exact specification.
Due to this reasons and situation we have taken the initiatives to implement our own weekly coal matrix representing SME trading houses and miners for Indonesian origin coal. This coal matrix is published on every Monday of the week based on previous week market assessment and evaluation. Sample of our weekly published coal matrix can be download at: CLICK HERE
2. DEFINITION, OBJECTIVE & CONTENT OF WESTLINECOAL MATRIX
The direct meaning of the word ‘Matrix” is defined as “a rectangular array of elements (or entries) set out by rows and columns”. Applying this definition we have design our coal matrix in such a manner for reader to easily navigate our matrix to refer coal grade (i.e. specification), pricing and terms in order to make “apple to apple” comparison in a single workbook. Thus our objective of having this weekly published coal matrix is to improve market transparency and enhance trading efficiently when dealing with SME category of suppliers.
Our weekly published coal matrix has much information which is carefully categorized using colour tab at the bottom of our EXCEL workbook which includes:
2.1 Price (Export) - USD prices of various coal grade coal on FOB & CFR terms to most coal Importing market.
2.2 Price (Local) - IDR prices of various coal grade coal on FOB & CFR terms to most coal jetty for local power plant.
2.3 Price Chart - Price trend of Indonesian origin coal and exchange rate trend since Year 2008 till present.
2.4 Specification - Specification of coal from all the various sources in Indonesia. It also include NAR, GAD and GAR interpretation which we have calculated
using standard formula.
2.5 Coal Calculator - Automatic conversation table for interpretation form GAD to GAR, GAR to NAR, GAR to NAR etc.
2.6 FAQ - Frequently Ask Question by prospective buyers which we have buying system.
2.7 Port Name - List of all port to various countries which we have categorize them to different zone (i.e. North, South, East, West etc) since distance is one
determinant for freight cost.
2.8 Process (A-Z) - Step by step process from negotiation to shipment is listed for each prospective buyer to understand the buying procedure when buying
coal from SME category.
2.9 Structure - This is the comprehensive view of the general market structure and supply chain when buying Indonesian origin coal through SME category of
suppliers.
Our weekly published coal matrix is based on the following terms and conditions:
- Payment by 100% Documentary Letter of Credit (DLC) at sight OR SKBDN (local L/C) based on final inspection by independent surveyor at loading port. For cash term price may be lower between USD 5-6/MT.
- CFR published price is based on double funding cost (i.e. Funding for FOB by local funders and funding for CFR by International funders). But if only one funding element is used price may be lower by USD 6/MT.
3. METHODOLOGY PRINCIPLES
Our coal matrix is derived from two main elements - a weekly assessment of the various international indexes in the past week based on mid grade of coal and by leveraging information through our local networks. The details of the methodology used for each of these elements are as follows:
3.1. From International Indexes
We assess at least five reputable International coal indexes on FOB basis and then make a volume weighted average on this entire index which would give a certain value on the price trend for shipment within the next 30 (thirty), 60 (sixty) and 90 (ninety) days. We then further moderate this average value to suit the quality of coal, local ,miners expectation on price and the standard for Indonesian origin coal produced by SME category of suppliers which would provide the reasonable price it should be for delivery within the next 30 (thirty) days for each grade of coal.
3.2. From Information gathered from local networks
Upon having the reasonable price for delivery within the next 30,60, 90 days, we then gather further information from about 15 (fifteen) sourcing executive located in South Kalimantan, East Kalimantan and Sumatra to give feedback to our team of market analyse the real current market price of coal on FOB-barge cash basis for each type of coal grade and specification. Once we have the FOB-barge cash price basis from various locations and coal grade, we then again make a weighted average on these prices for each grade leaving out price that is too low or too high.
From the above two main elements we then calculate other cost before we published the current appropriate and reasonable price on FOB & CFR which include the following consideration:
- Transhipment cost from barge to vessel (if for FOB-Vessel shipment)
- Funding cost on FOB terms (for payment by financial instrument, i.e. Letter of Credit)
- Funding cost on CFR terms (for payment by financial instrument, i.e. Letter of Credit)
- Freight cost (for shipment on CFR terms)
Upon considering all the above elements and other cost we then further consider appropriate discount for delivery within the next 35-35 days for those buyer who are able to sign contract within the next 7 (seven) working days from the date of our current published price with SME category of suppliers.
Besides price, our weekly coal matrix also cover all other information about terms, conditions and procedures which is reviewed and updated on weekly basis to ensure that the information we provide is current and valid for all reader, in particular coal buyers.