Coal Traders Turn to Private Finance as High Demand Lifts Prices

(Bloomberg) — Coal traders are turning to private financing to maintain shipments after a European ban on Russian imports sent prices up fivefold.

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Russia accounted for almost half of the EU’s hard coal imports in 2020, but all purchases stopped in August when the bloc imposed sanctions over the war in Ukraine. This has boosted sales as European buyers look around the world for alternative supplies to offset energy shortages, driving up prices.

The rally is a problem for traders, who have been under pressure as banks have backed away from financing thermal coal sales in recent years. With each commodity now worth more, financing has become more difficult, pushing traders to private finance – which usually requires higher interest rates.

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“Most banks and insurance companies won’t touch it, so the sellers come to other markets,” said Peter Ryan, managing director of private equity fund Goba Capital. Goba has more than $500 million in a pipeline of commodity loans — mostly coal — according to Ryan.

With Europe suffering its worst energy crisis in decades, several countries have backed away from plans to phase out coal, using the oil to fuel power plants as prices rise. Natural gas in crisis.

The increase in demand for polluting goods – as well as sellers of high-quality products are willing to pay access to debt – has prompted an increase in the willingness of money for bank transactions.

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Trade finance is often secured, which means that the lending bank owns the goods during shipment – making it a low-cost business. But if the bank requires a low single figure for the financing of metals or oil, the money offered interest to the young middle class for the sale of coal, said Ryan’s Goba.

Such financing opportunities attract commodity-focused funds, but also those that have focused on traditional business financing.

“We’re not a cargo specialist,” Ryan said. “This new reality, especially in coal, whose prices lend themselves to high-quality services.”

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Coal trading indicators are good enough that the market can handle higher lending rates, according to Chris Scott, chief financial officer at Novum Energy Trading Corp. ., which specializes in petroleum products but also sells American and Colombian coal.

“The money is there for a reason – there’s a margin to support the additional capital expenditure,” Scott said, adding that higher costs tend to increase, with energy providers ultimately charging customers more. by drying them.

“The thing is, at the end of the day, it’s the man in the street who pays for it. It always goes through the chain.”

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