Indonesia’s ICI4 index increased by $4.8/t for the 5800 GAR grade coal while the popular grade 4200 GAR is up by $2.2/t w-o-w basis.
Indonesian thermal coal prices that touched its lows in 2020, are now soaring high amid the changed trade dynamics. As China imposed an indefinite ban on Australian thermal coal imports towards 2020 year-end, its demand for Indonesian coal increased dramatically driving up its prices. Adding to it, harsher winters this year has significantly pushed up China’s coal demand.
While China fulfils a substantial portion of its thermal coal requirement domestically, is is not sufficient enough. In fact, China’s domestic coal (5500 NAR) prices have surged by 59% in the last two months, since the winters became more severe and is being traded at around at RMB 980/t ($151/t), FOR Qinhuangdao basis.
In comparison to this, Indonesian 5800 GAR coal (equivalent to 5500 NAR) is assessed at around $91-92/t, CFR east China. There is increased demand from China for mid and high-cv Indonesian coal as imports from Russia has been severely affected due to heavy snowfall, while the production issues in Colombia has hampered exports to China. The coal supplies from Indonesia have also become quite tight amid heavy rainfall.
Indonesian coal prices too high for India
Demand from India (second largest consumer of Indonesian coal) has been quite lukewarm especially post New Year holidays. This is because Indian buyers have either fulfilled their requirements or are opting for domestic coal to meet their demand, and are waiting for Indonesian coal prices to subside.
Indonesian portside coal prices for 4200 GAR coal is at around INR 4,000 (exclusive of cess and GST) ex-Magdalla port.
“The buyers are resisting raised prices and are seeking 4200 GAR coal at not more than INR 3,600/t. While buyers are expecting a correction in Indonesian coal prices with the Chinese New Year Holidays approaching in February, sellers are confident that Indonesian coal index would not see any correction in the Q1 FY21”, remarked a coal trader based in Gujrat.
He further opined that the prices are unlikely to come down as availability of Indonesian coal has vastly reduced. Meanwhile, the stand-off between buyers and sellers is likely to continue with the index on a bull run.
Outlook
We believe that any correction in Indonesian coal prices seem unlikely due to a colder winter spell this year, rising LNG prices, and Chinese ban on Australian coal. However, few market participants opine that given the severe shortage of coal in China, the country would not have any option but to allow Australian coal once again into its territory.
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