Indonesia: Thermal coal prices hit new highs as China urges long-term contracts

Indonesian coal prices surged to record-levels as the mid-to-high CV grades rose by $10-16/tonne (t) amid China’s robust downstream demand, wherein the National Development and Reform Commission (NDRC) urged power utilities to cover 100% of their coal consumption via long-term contracts.

The announcement lifted spot prices in China to up above RMB 1,500/t ($232/t) while other-origin thermal coal prices from Indonesia, South Africa and even Australia also shot up by $7-15/t towards the end of last week.

The robust winter restocking demand has already compelled power utilities to begin their bookings this month amid sky-rocketing global thermal coal prices.

“Given the critical state of coal availability in China, most power utilities have been making Indonesian coal booking up to early 2022. However, deliveries remain an issue amid the severe shortage of cargo currently,” an Indonesian producer said.

Currently, power plants in China are left with low inventory as domestic supply remains subdued and some even had to turn off their boilers to save costs, while manufacturing units continued to use energy judiciously. As many as 16 provinces in the country have also planned to cut their power consumption this winter.

Indonesian thermal coal index prices

Prices in $/t

Rains, Covid hamper Indonesian supply

As the heavy rainfall in Indonesia had already disrupted mining activity, miners across South and East Kalimantan were delaying cargoes due to flooding. The slowdown in production also weighed on several producers grappling to meet their Domestic Market Obligations (DMOs).

According to market participants, several Indonesian vessels were quarantined after a few crews tested Covid-positive, further delaying shipments.

Miners expect coal exports prices to remain elevated this year as the heavy rains are hampering 4-5 mn t of monthly coal output, mainly from the South Kalimantan region.

 Indian units avoid bulk purchases

Despite the rising prices of Indonesian coal, manufacturing units ramped up their portside purchases last week amid an acute domestic coal shortage.

According to market participants, an expectation of a further rise in prices led to a rise in portside trade in Indonesian coal but buyers avoided bulk purchases.

“There is a panic-buying in the market currently based on the view that prices would rise further. However, bulk bookings have reduced sharply,” a Surat-based trader said, adding that several Indonesian vessels that have been arriving are majorly pre-booked.

The cargo scarcity from Indonesia, however, may continue to cap any sharp rise in bookings this week, informed market participants.

Amidst increased imported coal prices, portside offers of 4,200 GAR in Kandla rose by INR 300/t to INR 7,800/t, while offers for 5,000 GAR in Kandla were at INR 9,000/t, in case of advance payments (prices exclude cess and GST).

Outlook

CoalMint believes, Indonesian coal prices are likely to remain elevated amid the robust downstream demand emerging from China due to its winter restocking.

Slowdown in output in Indonesia and lower cargo availability are further likely to delay deliveries from the country, keeping prices higher in the near term.