New pricing mechanism enters DES ARA market

摘要

A new mechanism has recently entered the DES ARA spot market which, it is claimed, is designed to negate the economic risk to the buyer and seller of shipping tolerance (+/-10 percent) on traded coal cargoes. Unofficially known as FPS, or 'Flexible Pricing Structure', the mechanism is used to price the tolerance element on a fixed price deal at the API2 settlement for the month of delivery. FPS has been used in the oil industry for some time but is relatively new to coal, having surfaced in recent months.