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First index-priced coal deal from South Africa to China concluded

First index-priced coal deal from South Africa to China concluded

Shanghai: The first index-priced term deal to supply South African coal to China has been done by an international company active in physical coal trade and for around 2 million tonnes a year, sources close to the seller said The seller, which declined to be identified for reasons of commercial confidentiality, said Chinese forward demand for South African coal has been increasing.?"There's going to be a lot more South African coal shipped to China going forward," one source said.?A deal that is indexes against benchmark prices allows sellers to use coal derivatives to mitigate price risk.?The significance of the first such deal is that if more Chinese counterparties adopt indexing, it will encourage many more sellers to weigh the margins offered by China and India against those offered in Europe, traders and producers said.?"If index-pricing starts to be possible into China, then selling South African there will be a no-brainer," one of South Africa's largest exporters said on Monday.?Expectations of rising prompt demand from China have pushed benchmark South African prices to $100 a tonne FOB Richards Bay from $85/T a month ago.?Although spot demand is rising, some importers are looking much further ahead - a big change from the past year when most deals were for no further ahead than the next month.?China is expected to import around 6 million tonnes of South African coal in 2010, out of total South Africa exports of 70 million tonnes .?China began ramping up coal imports from outside the Pacific region in late 2009 - from Colombia and South Africa - to meet booming power demand in its southern coastal regions but has historically bought on a fixed price basis, delivered to port. [03/11/10]

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