The government of Indonesia has set its thermal coal benchmark price (or better known as HBA) for August at $50.3/t, down by 3.49% compared to $52.2/t in Jul’20, in line with the descending coal demand in the global market.
“The lower August HBA is still caused by the Covid-19 pandemic which has reduced demand in a number of coal importing countries, while coal stock in the global market increases,” said Ministry of Energy and Mineral Resources Spokesman Agung Pribadi in a statement recently.
He also added that China’s and India’s policy of prioritizing domestic coal production over imports has also undermined the HBA price.
Agung admitted that the HBA has experienced a downward trend since the World Health Organization (WHO) declared Covid-19 as a pandemic in mid-March this year.
What is benchmark price?
HBA is based on the average price of four coal price index, namely 25% of Argus-Indonesia Coal Index (6500 kcal/kg GAR), 25% on Platts Kalimantan (5900 kcal/kg GAR), 25% on the Newcastle Export Index (6322 kcal/kg GAR) and 25% on the globalCOAL Newcastle (6000 kcal/kg NAR) index.
Weak demand from key importers
Executive Director of the Indonesian Coal Mining Association (ICMA) Hendra Sinadia said that the decline in HBA indicates that demand is still weak, especially from China and India as the largest coal importers.
Hendra explained that although the indicators for the second quarter of 2020 for China’s economy showed improvement, imports from China were still weak in line with the large stockpile.
Meanwhile, in other coal importing countries such as India, the economy has not yet recovered. In fact, a number of countries, such as the Philippines and Vietnam, have re-imposed lockdown policies in certain areas.
“In terms of demand, to expect an increase from major importing countries, it really depends on how these countries can cope with the spread of Covid-19,” said Hendra.
Efforts to contain supplies
Meanwhile, from the supply side, Hendra emphasized, the government needs to control production. It was intended to minimize the gap in the market that is now being oversupply.
This is an alternative solution in the midst of market conditions that can be considered as a buyers’ market, he added.
As it is known, in early July, ICMA pushed for a decline in national coal production by around 15-20%. According to Hendra, the drive to reduce production needs to be done in response to the downward trend in prices due to oversupply.
“Our view as an association is to encourage prices to strengthen, steps to reduce production need to be considered because of the widening oversupply conditions. Oversupply in the market has occurred long before Covid-19, but has widened with the spread of Covid-19,” he explained.
However, the drive to reduce production was responded differently by a number of companies. Hendra said, each company has their own considerations so that there are those who stick with the production plan at the beginning of the year, there are those who will reduce production, but there are also those who want to increase it.
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