Indonesia thermal coal prices remain elevated even as China buyers retreat

Indonesian coal prices continue to remain elevated with high-calorific value (CV) rates moving up further by $2/tonne (t) on a w-o-w basis despite Chinese buyers (the top purchaser of Indonesian coal) taking a backseat.

The price escalation sustained majorly due to heavy rains in the country that has led to tight domestic coal supply. Torrential rains over past few days has affected production in the coal-rich regions of south and east Kalimantan. This led to several mines halting operations and declaring Force Majeure. There were even delays in port operations consequently, leading to uncertainties in laycan, informed market participants.

Indonesian thermal coal prices

Prices in $/t

Chinese buyers take a backseat

Chinese demand for Indonesian coal has waned recently capping any sharp rise in prices. Chinese traders have moved to the sidelines with the cooling in peak summer temperatures and also because of vessel congestion due to strict quarantine rules.

Owing to the recent rise in Covid-19 cases in China, the authorities tightened quarantine measures for imported vessels in the country which led to severe congestion at ports.

But high freight rates and import prices have led the Chinese to source domestic coal, pushing up prices of the same. Offers for domestic 5,500 NAR thermal coal in China are heard at RMB 1,080-10,85/t ($166-167/t).

Inventories at the coal hub, Qinhuangdao Port, continue to remain under pressure at 4.35 million tonnes (mn t) as on 27 Aug’21, down by 0.28 mn t w-o-w and by 0.65 mn t on a m-o-m basis.

Indian demand only restricted to low-CV Indonesian coal

Amidst the resilient vessel freight rates and availability of domestic coal at low prices, Indian demand for low-CV Indonesian coal prices remained under support.

Owing to the higher moisture content in domestic coal during the monsoon, the companies are opting for low-CV Indonesian coal.

Further, the increase in India’s power generation and a steep fall in coal inventory levels at power plants as reported last week, have also raised the prospect of several power companies importing low-CV coal.

As on 28 Aug’21, coal stock has fallen 14% w-o-w to 13.37 mn t compared to 15.64 mn t assessed on 21 Aug’21. Power supply shortage was also assessed to the tune of 77.7 million units (MU), compared to the shortage of 2.3 MU on the same day in 2020.

Coal stock levels at power plants (having coal linkages) have fallen to over a 15-month-low recently as these inventory levels were last seen in Nov’18 when coal stocks had declined to 12.9 mn t.

However, majority of the power utilities, reeling under financial burden, continue to stick to domestic coal and are opting for ”aggressive auction” procurement amidst a wide price difference between imported and domestic.

The disparity between the landed cost of the 3,800 GAR Indonesian coal (ex-Kandla, including cess and GST) at present and the equivalent grade of domestic coal (from WCL mines after adding all duties and taxes) stands at INR 3,700/t.

Amidst lower availability, portside offers of 4,200 GAR coal in Kandla were at INR 7,000/t, while offers for 5,000 GAR in Kandla were at INR 7,900/t, in case of advance payments (prices exclude cess and GST), up 13% m-o-m.

Short-term outlook

With already lower number of vessels discharging from Indonesian ports amidst floods and strict quarantine rules in China, Indonesian coal prices are likely to remain elevated in the short-term.

On the demand side, Chinese utilities are expected to start stocking up coal for the upcoming winter season, supporting Indonesian coal prices.

Indian demand for high-CV coal is likely to remain limited because of elevated prices. However, low-CV coal demand is anticipated to move up with the end of the monsoon season.