The OTC Coal Products and the Chicago Mercantile Exchange (CME) Cleared Futures
While a variety of coals trade in the OTC coal market, the majority of the trading activity is cleared via the Chicago Mercantile Exchange (CME). Two products in particular account for the bulk of U.S. coal trading; the 12,500 Btu/lb Central Appalachian CSX rail coal, and the 8800 Btu/lb Powder River Basin (PRB) coal. The CSX and PRB contracts are financial block futures that settle against the Platts OTC Monthly Broker Index for CSX and PRB look-alike physical coals. Both “cleared” coal products utilize CME’s Clearport.
There is another clearing exchange, the Intercontinental Exchange (ICE) that promotes financial block futures trading on four coal products. They are the PRB, CSX, CAPP barge and ILB barge products. There has been limited domestic coal trading on ICE, having no “open” positions for PRB, CSX, and CAPP with the exception of the ILB product. The ILB barge product is an 11800 Btu 5.0 #SO2 coal with very limited activity. Coal trading through ICE has primarily been with international coal participants.
The table below list the coal products found in the Coal Pricing Report. The bold-faced products are the look-alike products that are also listed on the CME. All these products have some degree of market activity, but as previously stated, the CAPP and PRB coals provide the most market liquidity.
Physical coal transactions require bilateral contract agreements. These contract agreements are often referred to as Master Sales and Purchase Agreements and are typically in place prior to trading. They stipulate the standardized contract terms and conditions, and credit requirements for both buyer and seller. If a preexisting agreement is not in place at the time of the trade, both parties work toward establishing an agreement in a timely fashion.