* S.African discount to index doubles on poor demand
* S.African prompt fixed price bids slump $3-5 to $112-$115
* Coal swaps stay robust bolstered by strong oil
* China buys 6,000 kc/kg Russian prompt cargoes
LONDON, June 9 (Reuters) - Lack of demand for prompt South African spot coal is finally starting to be reflected in physical prices, traders and utilities said on Thursday.
Coal swaps held firm, however, bolstered by strong oil prices. Swaps have helped prop up physical values despite daily weakening fundamentals.
This has been most noticeable in the increased number of trades at deepening discounts to the API4 index, most recently a trade on Thursday for a July cargo at $3.00 below index, sold by a utility to a trader.
On Wednesday, prompt South African prices had fallen to $1.50 below index.
South African prices have hovered either side of $120.00 a tonne for the past few months, a price plus freight which has been uncompetitive and has prompted Indian, South Korean and European buyers to seek coal from other origins.
"South African is the unwanted problem child of the coal market today," one trader said.
"There's a lot of coal around in Europe, and nobody anywhere wants South African coal at these prices. Whoever bought the July cargo at $3.00 under index was probably only covering an existing short position; it doesn't reflect real demand," a major utility source said.
The increasing discounts to the index were an attempt by sellers to move coal, which was proving tough to sell at $118-120.
South African prices are going to have to fall closer to $110 before fresh buying emerges from India, which has steered clear of South African coal for several months, or China, which is evaluating South African versus Australian, Russian and U.S. delivered prices.
Chinese end-users have in the past week bought a few standard Russian coal cargoes of 6,000 kc/kg quality at prices of up to $134 a tonne delivered [ID:nLDE75818M].
This high-grade coal is likely to be blended with the substantial low-energy sub-bituminous imports already bought from Indonesia by Chinese power plants, traders said.
"It makes sense for Russian to be one of the cheapest good quality coals to be sold into China, because the freight is so low but the quantity is small. It's a drop in the ocean. Everybody's got too much coal," another utility source said.
Fixed-price South African cargoes have yet to trade sharply lower, although downward pressure is increasing, but bid levels did fall steeply on Thursday to $112-$115.00 a tonne, a drop of $3-5.
Offers remained firm at close to $120.00 a tonne.
Active bidding and offering by one major utility in both the DES and Richards Bay markets has been a price-supporting factor for many months but is increasing the disconnect between weak fundamentals and visible fixed prices for physical material, traders, brokers and utilities said.
TRADES
A July loading South African cargo traded at $3.00 below the API4 index.
An August South African cargo traded early on Thursday at $1.45 below API4.
A September South African cargo traded at $1.15 below API4 via brokers.
A September South African cargo traded at $121.25.
A June delivery DES ARA cargo traded at $122.50, little changed.
PRICES
A June South African cargo was bid at $112.00 with no offer against it.
A July South African cargo was bid at $115.50 and offered at $119.75.
An August loading South African cargo was offered at $120.95, down $1.00.
A July DES cargo was both bid and offered at $125.00 a tonne, up $2.00.
(Reporting by Jackie Cowhig, editing by Jane Baird, sourced Thomson Reuters)
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