After falling for two consecutive weeks, the Indonesian Coal Index (ICI) for low-calorific value (CV) coal rose by $1.42/tonne (t) for 4,200 GAR and $2.36/t for 5,000 GAR week-on-week (w-o-w). The same are currently assessed at $55.04/t and $79.64/t, FoB basis, respectively.
Shipment delays arising out of unforeseen rains in Kalimantan have led to lower number of cargoes available for Jun’21. Several mines in South Kalimantan have been suffering from waterlogging following heavy rains, informed market participants.
Inquiries from China gained momentum from last week as its peak summer season neared and hydro power generation slightly weakened, driving up domestic thermal coal prices in the country. Demand from India, however, remained muted as market participants awaited further relaxation of Covid-19 restrictions in the country and also because of resilient freights.
China’s demand strengthens:
The country has been stocking up on coal in sufficient quantities to prevent blackouts in its manufacturing hubs amidst pick up in industrial activities as it recovers from the Covid-19 pandemic this year. Also, a more-than-expected warm summer starting June, that would drive up household power consumption, is prompting the Chinese to stock up on coal.
Despite rising intervention by the Chinese Cabinet over the soaring commodity prices in the country, domestic coal moved up once again last week.
The prices for 5,500 NAR grade thermal coal in China as on 4 June’21 have been assessed at RMB 940/t ($146.8/t) against RMB 880/t ($137.4/t) on 28 May’21.
The sharp rise in Chinese domestic prices comes amidst supply tightness in Indonesia as industry reports predict the current logistic issues in the country may bring down total Indonesian shipments by 15% to below pre-pandemic levels.
However, Indonesia has planned to produce 625 mn t coal in 2021, up from 550 mn t pegged earlier to meet China’s strong buying appetite. In 2020, coal production in Indonesia stood at 563 mn t.
Subdued Indian demand:
Several coal shipments originally planned for smaller ports like Magdalla were heard to have been shifted to Kandla last month due to draft issues at tidal ports in the monsoon season, informed market participants.
Higher-than-expected rise in stocks in Kandla further capped a sharp rise in Indonesian portside prices in India.
Portside prices for 4,200 GAR grade thermal coal remained largely stable at INR 5,250/t ex-Kandla, and for 5,000 GAR at INR 6,500/t ex-Kandla for advance payment.
According to market participants, weak demand from domestic industries such as power and cement, coupled with escalated freights, have so far kept importers away from making any large bookings.
The current freight for supramax vessels between Indonesia and India is currently assessed at $25/t which was at $11/t in Jan’21.
“Portside trade of Indonesian coal has taken a major hit due to the sharp rise in imported coal prices. Many from the power sector have shifted to domestic coal, while the cement sector currently has sufficient amount of Australian coal for the next few months,” an Ahmedabad-based trader said.
The bid price for G11 grade, with a CV of 4,000-4,300 kcal/kg in South Eastern Coalfields Limited’s (SECL’s) last auction held on 17 May’21 was assessed at INR 1,400/t ($19/t) whereas imported prices of 4,200 GAR Indonesian coal are averaged at $55/t, FoB in May’21, making domestic coal much cheaper even after adding duties and taxes.
Short-term outlook
According to CoalMint’s analysis, Indonesian thermal coal prices are likely to get support due to China’s strong appetite for thermal coal as it gears up for a warm summer this year. Weak shipments from Indonesia due to rains are also likely to keep Indonesian coal prices up.
However, a halt in the Indonesian coal price rally is likely in case the Chinese government opts to intervene and dissuade coal usage as part of its plan to restrict carbon emissions from various industries.
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