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Derivatives

Japanese Utilities Expected To Enter Weather Mart

Kansai Electric Power Co. and Kyushu Electric Power Co. are separately considering entering their first weather derivatives contracts to hedge against a cold summer reducing the revenue they generate from powering air conditioning units, according to officials familiar with the companies' plans.

Takahiro Honda, assistant manager of the accounting and finance department at Kyushu Electric, said "we're evaluating these types of transactions." He added that he is speaking with a number of banks and insurers about entering contracts to hedge against cool summers in the coming months, though he declined to elaborate on specific products or the potential size of deals.Naoki Naito, head of corporate planning at Kansai in Osaka, declined comment.

"We're starting to see inquiries," said Hiroshi Matsui, senior manager of derivatives and fixed income at the Industrial Bank of Japan in Tokyo. He continued that after the fiscal year-end at the end of March, he expects utilities to hedge weather fluctuations for the coming summer, which could reach JPY5-10 billion (USD38-77 million) in total volume.

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