After rising almost 100% in CY’21, global thermal coal prices began 2022 on a bullish note as the Indonesian government’s call to prioritise domestic supplies sent shockwaves across the global market.
South African RB1 (6000 NAR) grade coal prices have risen up to $164/t FOB, up $45/t since 3 Jan’22, while Newcastle Australian (6000 NAR) coal prices have risen by over $20/t since the beginning of the year.
Although with the gradual easing of the Indonesian coal export ban thermal coal prices have eased slightly, especially in China, prospects of a supply shortfall this year continue to linger.
Thermal coal futures on the Zhengzhou Commodity Exchange in China have dropped to RMB 692/t ($109/t) today, down RMB 23/t since the beginning of the year.
Coal demand in China is expected to be limited in the upcoming weeks as the government confronts rising Covid-19 cases ahead of the Lunar New Year holidays.
Indonesian supplies
The drastic step of imposing a complete ban on Indonesian coal exports came as miners in the country delayed meeting their Domestic Market Obligation (DMO) in 2021.
As per the country’s DMO policy, miners are expected to supply at least 25% of their annual production to state utility Perusahaan Listrik Negara (PLN) at a maximum price of $70/t.
Heavy rainfall in Indonesia last year had severely impacted coal production, as miners missed their output targets by 45 mn t.
Though the government has already released several big vessels, partially lifting the ban following global pressure, several coal companies that failed to meet their DMOs would continue to be restricted from exporting.
Nevertheless, the sudden disruption had already caused a huge loss of scheduled supply and is likely to affect deliveries from Indonesia for sometime now.
According to market participants, Indonesian miners are yet to conclude deals for the upcoming months depending upon the effects of the ban on logistics.
Most miners have been holding on to cargoes and securing them for buyers whom they failed to deliver this month, traders informed.
Ripple effect
Amid a supply void created by the Indonesian export ban, buyers have rushed in to procure Australian and South African coal.
However, supply continues to remain an issue from almost all the origins. Thermal coal stocks at South Africa’s RBCT Port has declined to a multi-year low of 1.9 mn t as against an average 5 mn t. The decline in stock levels have resulted in sharp fall in shipments, pushing portside prices higher in India.
Swift delivery of coal from Australia may also come under pressure in the upcoming month as Australia’s Bureau of Meteorology has forecasted the La Nina weather pattern to extend the wet weather in the northern and eastern regions, increasing the potential disruption to coal exports.
Russian coal supply, on the other hand, is already facing disruptions due to a cold spell, while supply in Eastern Europe has been hit due to unrest in Kazakhstan and the military standoff at the Ukrainian border.
Outlook
CoalMint believes that global thermal coal prices are likely to remain high in the near term, especially with the sudden loss of Indonesian supply. Further, as the major exporting countries are already overcoming the supply disruption during late 2021, thermal coal supply globally would take some more time before coming back to normalcy.
The only possibility of a price correction could emerge from China if domestic production in that country continues to flourish and import demand weakens.
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