JPMorgan Said to Double Tokyo Commodity Desk on Hedging Demand

April 8 (Bloomberg) -- JPMorgan Chase & Co. has almost doubled the number of its Tokyo commodity traders to meet demand from utilities seeking to use coal-derivatives to hedge against price swings, said a person with knowledge of the expansion.

The second-biggest U.S. bank has increased the headcount to around 10 in the last 18 months, in part to meet the needs of utilities such as Chubu Electric Power Co. and J-Power, the country’s biggest power wholesaler, said the person, who declined to be named because the information is private.

JPMorgan joins Deutsche Bank AG and Barclays Plc in boosting sales of swaps and other products to help Japanese utilities mitigate risk from volatile fuel costs. J-Power’s profit dropped by a third in fiscal 2008 and Chubu posted a loss after benchmark Australian power-station coal prices rose to a record in July then fell 61 percent five months later.

“Utilities’ hedging needs have grown rapidly over the past few years as physical coal prices became more volatile,” said Ken Hasegawa, the energy team manager at broker Newedge in Tokyo. “The question is whether other power companies will follow suit.”

Mika Nemoto, a spokeswoman for JPMorgan Securities Japan Co., declined to comment.

J-Power, officially known as Electric Power Development Co., hired Barclays commodities banker Toyohiko Kuroda last year to bolster management of risks associated with coal procurement, Masato Uchiyama, director of the utility’s energy business division, said in an interview on April 6.

Coal Swaps

The utility, which buys 20 million metric tons of coal annually, transacts coal swaps for part of that total to hedge against price fluctuations, said Uchiyama, 54.

Swaps allow utilities to pay a fixed price for coal while another party, usually a bank, pays a floating price, based on market benchmarks. If the benchmark goes up during the term of the contract, the utility gets a payment from the bank, and if it goes down, the utility pays.

Nagoya-based Chubu Electric transacted 15 million tons worth of over-the-counter coal swaps free on board at Australia’s Newcastle port in the year ended March 31 after forming an alliance with a unit of Electricite de France SA in 2007, said Yoshio Komura, director of Chubu’s trading unit.

Japan’s third-biggest generator formed Chubu Energy Trading Inc. in 2007 to procure the fuel for resale to other users in Asia and trade derivatives, Komura said.

Spot power-station coal prices at Newcastle, the world’s largest export harbor for the fuel, retreated to an average $71.71 a ton in 2009 from $129.02 the previous year as the global economic recession eroded demand. Prices climbed to a record $192.50 in July before plunging to $75.25 in Dec. 5, 2008. Coal gained 14 cents to $94.98 a ton in the week ended April 3, according to the globalCOAL NEWC Index.

Japan, the world’s biggest power-station coal importer in 2009, ships in about 92 million tons annually. Australian suppliers led by Xstrata Plc and Rio Tinto Plc account for more than half while Indonesia, the second-biggest supplier, provides about 20 percent, according to the finance ministry.