A commodity swap which entails the exchange of a fixed coal price for a floating coal price. For example, a coal producer that sells most of its production through long-term contracts, whilst the remaining amounts being sold on a floating basis against a relevant index. This producer will still be exposed to a fall in the coal price over time. Therefore, it may swap this exposure into a fixed price if it believes that the price (the fixed leg of the swap) is at a quite favorable level.

The producer would be receiving a floating index on its underlying physical exposure, but also would be paying the same floating price as set out in the swap agreement. As such, the two floating exposures are cancelled out, and the producer is left only with a fixed cost. In this case, the fixing date of the floating price should coincide with the fixing date of the physical exposure. Otherwise, the producer will be exposed to relevant basis risk.