In light of the tight coal supply in Indonesia, the coal mining association (APBI) recently called on companies to ensure sufficient domestic supply as rising export prices are prompting importers to sell their material outside the country.
This has come at a time when Indonesian miners are prioritising exports over domestic supplies amidst increased spread between the thermal coal reference, (also known as HBA) and the Domestic Market Obligation (DMO).
The harga batubara acuan (HBA), thermal coal reference prices for Jun’21 are assessed at $100.33/tonne (t), while DMO prices are hovering around $70/t for domestic power producers in Indonesia.
As per CoalMint data, Indonesia’s thermal coal exports were up marginally by 1% y-o-y to 132 miillion tonnes (mn t) during Jan-May’21.
Miners directed to increase coal production
APBI has urged coal companies to ramp up their production to ensure sufficient supply within the country. The association also urged miners who had already signed their contracts to oblige the same. The DMO requires coal producers to sell 25% of their total planned output domestically.
The Ministry of Energy and Mineral Resources has suggested enforcing a compensation fine to ensure sufficient domestic supply to tackle the situation before blackouts occur. It is also preparing to impose a compensatory fine on coal companies which fail to fulfill their DMO this year.
Last year, the organisation had waived the compensation from miners after their DMO sales fell sharply due to the Covid-19 pandemic.
Tight coal supplies amidst heavy rains
Amidst spells of heavy rains in Indonesia this year, which resulted in waterlogging at various mines and delay in shipments, coal supply in the country has taken a significant hit.
In order to meet China’s strong buying appetite, the Indonesian government also raised its production target to 625 mn t in 2021, up from 550 mn t pegged earlier. In 2020, coal production in Indonesia stood at 563 mn t.
Though, the situation has been recovering gradually , the miners continue to face scarcity of cargo availability for at least till July this year.
So far, coal production has reached 237 mn t, 38% of the annual production target, the country’s Ministry of Energy and Mineral Resources informed.
Indonesian coal exports to drop in long run
As per industry reports, in the longer-run, Indonesian coal exports are likely to decline as its biggest consumer, China, ramps up its decarbonisation plans.
Several coal-fired power plants in China and overseas coal projects backed by Chinese financing have been shelved or cancelled amidst the rising concerns over carbon emissions.
In such a scenario, Indonesia is likely divert its exports to emerging markets such as India, Pakistan, Vietnam, and other South East Asian countries. But it may also face competition from other origins coals like South Africa, Russia and Australia.
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