Indonesian coal production is likely to remain 5% short of its annual revised target as miners react to the import restrictions imposed by China and tumbling coal prices.
Spokesperson from Indonesian Energy Ministry has estimated the country’s coal output to reach 480 MnT in CY18, around 4% higher than in CY17, but well below the government’s target of 507 MnT set for the year.
“Production is slowing down, due to weather problems and other factors [but] we don’t know for certain as yet [what the production total will be],” he said.
The country has produced 410 MnT coal so far in Jan’18-Oct’18 period, out of which 78% was exported.
Excess Supply Compelling Miners’ to Cut Down Output:
Indonesian coal market has been plagued by oversupply since the government had decided to revise its production output by 5% to 507 MnT for CY18.
The enduring trade deficit was also seen as a positive sign for the miners as the government had marked the additional tonnage for exports.
During the first quarter of CY18, Indonesian coal output was suffering from rains, but after the weather had improved in Q3 CY18, the miners had been speeding up their operations to catch up with the production losses incurred earlier.
However, the lack of Chinese buying has further worsened the situation, as a result of which the market had been flooded with oversupply.
Consequently, Indonesian coal prices are declining at a hefty rate, which are not even supporting the high cost of production, forcing miners to cut down their production levels.
The China Factor:
Indonesian coal market has always witnessed a strong demand in the fourth quarter (Q4) from China as they boost they replenish their stock levels to combat the winter season.
However, this year’s fourth-quarter took many by surprise as China continues to impose more restrictions on thermal coal imports and, in fact, at some provinces have totally stopped seaborne coal from entering Chinese ports for the rest of the year.
Media reports have claimed that Chinese government has imposed much severe restrictions this year in order to keep imports below the CY17’s level.
The lack of Chinese buying have added vows of the Indonesian coal miners who had taken position in the anticipation of a strong demand, but for now they are embraced to bear heavy losses.
Indian Imports Not Enough to Offset Chinese Purchases:
Indian buyers have been provided a sigh of relief by the declining Indonesian coal prices, where the country is itself grappling from subdued domestic coal supply and
low coal stock at power plants.
Indian buyers have significantly boosted their import volumes from Indonesia taking advantage of the drastic fall in prices, but it was still insufficient to make up for the decline in Chinese buying.
Historically known for being a price sensitive buyer, the Indian customers would only look to procure their vessels at lower rates with China on the sidelines, which would not help the cause for Indonesian miners to raise their output.
Indonesian coal prices, in particular 4200 GAR has fallen 37% since the beginning of CY18, and was recorded at a fresh low of USD 30-31/MT this week.
Market participants are expecting the 4200 GAR price to breach fresh lows as China remains dormant in the spot market.
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