Indonesia thermal coal prices rise as supply tightness deepens

The Indonesian Coal Index (ICI) continued to rise as coal producers in the country grappled with tight domestic supplies amid rising Covid-19 cases and their domestic market obligation (DMOs).

Indonesian thermal coal prices

*Price in $/t

Coal supply from Indonesia is being hampered as some mines in Kalimantan were heard to have slowed down operations because of rising Covid cases among the workforce.

Adding to the supply woes is miners’ commitment to supply coal to state utility Perusahaan Listrik Negara (PLN).

In fact, the Indonesian Ministry of Energy and Mineral Resources (ESDM) today has further decided to impose sanctions on coal exports of 34 companies as they failed to fulfill their DMOs.

The ban on coal exports from these companies is likely to amount to a loss of 50-60 mnt of supply from the country which may further pull up prices. Demand for Indonesian coal typically remains very high during the summer months in North East Asia. 

Chinese buyers move to the sidelines

A sharp rise in Indonesian coal prices, however, has been capped as Chinese traders largely adopted a wait-and-watch mode amid the government’s efforts to boost domestic coal supply.

On 5 August, China’s state planner decided to extend trial operations at 15 mines in Inner Mongolia, Xinjiang, Ningxia, Shanxi and Shaanxi to help raise coal output by an estimated 150,000 t per day.

As per market participants, there are mixed buying sentiments in China at present as the government’s plans to increase domestic supply might get affected by the uncertainties around the evolving pandemic situation in China. 

Indian buyers are being charged premium

According to market participants, major coal exporting companies to India have been charging index-linked prices plus premium of $1-2/t for coal bookings. Traders, on the other hand, who had already delayed their booking on expectation of a price correction have again pushed forward their bookings.

“The price disparity between domestic and Indonesian coal grades in the market are enticing coal-consuming manufacturing units to switch to more of coal blending. Most of the units are running at a loss and procuring low-CV 3,400 GAR mainly to blend and run operations,” a Surat-based trader said.

Though manufacturing units of steel, ceramics, chemical, and sugar continue to book smaller quantities of Indonesian coal, procurement of domestic coal dominated the coal trade.

Stock availability of the 4,200 GAR remains sharply under pressure in Kandla as the limited quantity of old stock available is being offered at INR 6,800/t.

Portside offers for 5,000 GAR in Kandla remains higher at INR 7,800/t, in case of advance payments (prices exclude cess and GST), up 12% m-o-m. 

Short-term outlook

CoalMint believes, Indonesian coal prices are likely to remain elevated in the near term amid tight supply conditions in the country especially after today’s ban on coal exports of 34 companies who have been unable to meet their DMOs.