Indonesian Coal Prices on Uptrend Despite Showing Early Signs of Softening

Coal prices have increased again, after declining for the past couple of weeks.

Indonesian coal prices were expected to remain bearish as China had imposed coal import ban at small ports plus sluggish demand from India during monsoon season.

However, tender requirements from China have supported coal prices, as heavy rainfall in Indonesia continued to hamper supply. Many miners were struggling to restore coal production at full capacity and deal with backlogs.

Rising domestic coal prices in China has also caused buyers to shift towards Indonesian coal market.

Indonesian Coal Index ICI 1(6500 GAR) had moved to USD 82.71/MT, up 2.16% W-o-W compared with USD 80.96/MT a week ago.

Spot Offers for 5000 GAR coal was assessed at USD 56-57/MT, FoB Kalimantan. 4200 GAR was quoted at USD 41/MT, FoB Kalimantan and 3800 GAR coal was quoted at USD 35/MT, FoB Kalimantan.

Indian Market Scenario:
Buying from India has been affected by Monsoon season plus uncertainty regarding GST implementation. One of the areas of confusion was the implementation of Clean energy cess of INR 400/MT, which is now know as the Compensation cess under the new GST regime.

Market participants were unclear if the Compensation cess will be applicable on coal imported at ports just before the GST implementation.

At present, Offers for 4200 GAR coal was heard at USD 49/MT, CFR India, while that for 3800 GAR coal was heard at USD 43-44/MT, CFR India.

Coal Production in Indonesia:
Indonesian Government had set coal output of 417 MnT in 2017. However, based on estimations of stakeholders in coal sector, actual production may reach 478 MnT in 2017, and that too does not includes illegal coal shipments from the country.

In order to safeguard coal reserve for the future, Indonesia’s Energy and Mineral Resource wants to reduce coal production as well as coal exports. The Energy Ministry wants to limit coal production to 406 MnT in 2018, followed by 400 MnT in 2019, to boost domestic coal consumption mostly by coal-fired plants.

Although the power to issue coal mining permits is in the hands of the provinces, the central government is formulating new national regulations that have to be implemented by the provincial governments.