Latest report suggests that Indonesian Coal Mining Association (APBI) have requested the government to relax country’s Domestic Market Obligation (DMO) for coal amid COVID-led poor domestic demand.
DMO is the mandatory coal sales of set percentage to the domestic power plant in order to ensure uninterrupted supply of coal to domestic utilities and avoid the risk of price fluctuations. Since 2018 DMO has been set at 25%.
In case producers are unable to fulfil DMO requirements they have to pay a fine and are subject to mandatory production cuts.
However, as the domestic demand for coal dampened in Indonesia due to COVID-induced lockdown, the miners are asking for relaxation of DMO quotas.
APBI highlighted that without relaxation of DMO, supply glut in the country is inevitable as miners would continue to produce to avoid fines and amid the unrestrained supplies, the domestic coal prices would fall. This would be a double whammy for the miners that are already dealing with all-time low seaborne export prices.
In case DMO quotas are relaxed, APBI said that Indonesian miners would be able to sell more in the export market without disrupting committed coal supplies to domestic utilities.
Oversupply concerns
During Jan-Jul’20, Indonesia’s coal production has been recorded at 324.4 mn t against coal sales of 286.1 mn t during the same period, thus raising the prospects of supply glut this year.
Apart from this Indonesia’s Energy Ministry has set a production target of 550 mn t for 2020 and an export target of 150 mn t before COVID-19 outbreak. However, amid the dampened overseas demand, the export sales are anticipated to come down to 100-110 mn t.
In this scenario, APBI has asked its miners to reduce their coal output and production targets. However, while several major miners have announced production cuts, few are keeping their targets unaltered sparking concerns of oversupply in the domestic market.
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