Indonesia thermal coal prices rise further, Indian buyers avoid purchases

Indonesian coal prices continued their upward trajectory this week amidst tight domestic supply following heavy rains in south and east Kalimantan and due to the rapidly spreading Covid-19 cases in most parts of the country.

Indonesian thermal coal prices

*Price in $/tonne (t)

Floods at some mines in south Kalimantan also slowed down production that had revived recently after reeling under heavy rainfall in the last few months, informed market participants.

The tight domestic supply condition in Indonesia comes in the wake of the country’s dire need of coal supply for power generation. The Indonesian Ministry of Energy and Mineral Resources (ESDM) recently imposed sanctions on coal exports by 32 companies after they failed to fulfill their domestic market obligation.

Further, Indonesian coal prices remained largely supported owing to the limited cargo availability from the country for the coming weeks.

Coal demand from China, India and Bangladesh (for post-monsoon restocking) is likely to outpace production which would keep Indonesian coal prices higher in the near-future, an Indonesia-based trader said.

Indian power companies shift to domestic coal

In conversation with the power companies, CoalMint learnt that many of them which used to produce electricity by blending imported and domestic coals have completely shifted to the domestic variety, while boilers of a few large scaled power plants that used to run only on imported coal and are mostly located in the coastal belt have been temporarily shut.

“Currently, imported coal procurement remains quite limited as prices are too high. Running plants by incurring losses has become commercially unviable and procurement will begin only when prices come down,” said an official from a reputed power plant.

Domestic coal with GCV of 3,200-3,800 NAR is the preferred grade for the power companies.

The disparity between the landed cost of the 3,800 GAR Indonesian coal (ex-Kandla, including cess and GST) at present and the equivalent grade domestic coal (from WCL mines after adding all duties and taxes) stands at INR 3,700/t.

GCV and ash content are the two key parameters that determine coal usage in power plants. Indian coal typically has high ash content vis-a-vis imported coal. Because of this, power generation via domestic coal yields sub-optimal performance.

Bid-offer mismatch continues

With the monsoon season nearing its end which generally sees a steady rise in economic activity, Indian importers thus continued to enquire for Indonesian coal bookings this week. However, bids remained far and between on uncertainty whether the raised prices would gain acceptance by end-users.

Rising Indonesian coal prices have made users buy only small volumes of domestic coal.

Amidst lower availability, portside offers of 4,200 GAR coal in Kandla were at INR 7,000/t, while offers for 5,000 GAR in Kandla were at INR 7,900/t, in case of advance payments (prices exclude cess and GST), up 13% m-o-m.

Short-term outlook

CoalMint believes, tight coal supply conditions in Indonesia are likely to keep its prices elevated in the near term. However, a sharp rise can be capped as Chinese traders are heard to be shifting to domestic coal as production has improved there and also because peak summer demand has now eased.

Indian demand for Indonesian coal is likely to pick up only after monsoon, if imported coal prices see any correction.