Ever since the outbreak of the Russia-Ukraine war this year, there has been a major shift in global coal trade flows. This has resulted in Russian supplies increasingly finding new homes in Asia, while South African and Australian coals are voyaging towards Europe.
While cheaper availability of high-calorific value (CV) Russian coal continues to gain more traction in the Chinese market, Indonesian coal exporters are eyeing India as its thermal coal shipments to the country are seen breaching the 100 million tonnes (mnt)-mark in 2022 with strong demand for the low-CV variety, Ramli Ahmed, President Director of PT Ombilin Energi, Indonesia, told CoalMint on the sidelines of the India Coal Outlook Conference, 2022.
However, he added, competing with cheaper Russian coal may come as a challenge due to their unbeatable price levels.
Apart from this, miners in Indonesia also continue to grapple with the challenges of rising domestic coal demand, stringent government policies, weak export prices, and finding new markets in emerging economies.
Edited excerpts from the interview:
Q. What is the outlook on Indonesia’s coal exports to India? Do you see India becoming the biggest buyer of Indonesian coal?
A. For 2022, coal export demand to India is estimated to cross 100 million tonnes (mnt) from 70 mnt in 2021 amid the rise in blending activities at thermal power plants. And also because of the energy crisis that occurred in early 2021 as a result of domestic production remaining disrupted.
India purchases mainly high-to-low-CV coal from Indonesia. Now, with the rise in Russian supplies into the country, I foresee only low-CV Indonesian coal to be attractive for Indian buyers.
We are already speaking with a lot of people and they are most interested in looking at 4200 GAR and below grades. I think this trend will persist till Russian coal stops coming into India.
Q. How big a factor is the Russian coal coming into India for Indonesia?
A. Well, we are beginning to feel it of late, as Russian coal started gaining prominence in the Indian market from the beginning of this year. We are feeling the pinch in the sense that many sellers of mid-to-high CV grades are finding it difficult to offload their cargo from Indonesia. In a comparison between Russian and Indonesian coal, the 6100 NAR Russian coal is coming at $160-180/t CFR India. There is no way we can ever beat that price level!
But I personally feel that this Russian coal entering India is more or less a temporary phenomenon. This is because the war is expected to come to an end in the near future and sanctions on Russia will be lifted sooner or later.
Q. What strategies should Indonesian miners adopt to retain India as a potential buyer? Can miners provide more discounts? Also, how viable will such discounts be since global prices are higher?
A. Providing discounts is always the way out when global prices are high. But the thing is, from the miners’ point of view, we will also have to look at their cost. Some miners really do have high costs in terms of stripping ratios, and other mining-related expenses. So this means that the discounts will be limited. There will be a point where providing discounts will not be viable.
What Indonesian sellers should do is look for alternate buyers from other countries where they can still offload their cargo and capture the markets with better prices. However, with China and India being the major buyers, Indonesian sellers continue to remain a bit complacent.
Q. Which emerging markets are you looking at for exports? What are their buying trends?
A. We have been looking at the Philippines, Thailand, Vietnam, Cambodia, and Pakistan as new export geographies. These emerging markets can offer a lot of opportunities. Pakistan buys a huge volume of high-CV coal where our price levels are much better than other origins.
Q. What is the outlook on Indonesia’s coal output for 2022? Will miners achieve their target?
A. We have achieved 55% of our coal output target so far this year. Last year, we missed our target by 11 million tonnes (mnt). I personally believe we may not meet this year’s coal output target of 663 mnt due to heavier-than-expected rainfall, equipment shortage, and rising domestic demand. Keeping all these factors in mind, and with only 5 months to go, reaching this year’s target may still be difficult. Domestic coal consumption has also increased by 25% this year.
Q. What are your views on the Indonesian government’s mining policies? How do they affect miners?
A. The decisions sometimes affect us very much. We were informed about the January coal export ban only on 31 December when people were celebrating New Year’s Eve. The miners and operators of mines in Indonesia found this hard to accept. We have given our feedback to the government saying that any decision taken should be done in consultation with the business community and the latter should be given ample time to react and get ready.
But the problem with the coal industry is that it is a very dynamic one and things change very fast. Apparently, just telling the miners that they have to supply 25% of the production is not working very well when export prices are very high.
Changes in mining rules by the government — like increasing royalties, domestic supply policies etc — definitely affect us. Otherwise, the government may just stall the capacity expansion and progress of the coal industry.
Q. Do you expect a coal export ban?
A. As long as there is enough coal for the domestic market, an export ban looks unlikely. It is not good for a country to impose an export ban when we still need foreign reserves.
Q. Can you elaborate more on the BLU?
A. The government has set up Badan Layanan Umum (BLU) to ensure adequate coal supply to the local industry, where the prices are capped at $70/t for 6322 GAR for state-owned power utility Perusahaan Listrik Negara (PLN) and at $90/t for fertilizer and other government-owned industries.
These prices are much lower compared to the export market. Sellers also face several difficulties when selling to the domestic market at these rates as the state power utility takes 30-60 days to pay the bills.
But, obviously, there are good miners who always fulfill their obligation religiously and meet 100% of their DMO quota. But even then that is not enough as we cannot get enough suppliers when the capping prices are too low. That is why BLU is being set up and its role is to compensate the sellers for the difference in local and export prices.
Q. What is the scenario with PLN right now? How do miners respond to the DMO allocation?
A. PLN is currently facing problems with suppliers who do not want to extend their contracts because they fear that if they fail to supply, they will be slapped with a huge penalty. So, most of these suppliers, after completing their DMO quota, would rather focus on the export market where prices are higher.
As far as the inventory levels are concerned, the number of days’ stock level is not at a critical level anymore but slightly below average.
–by Rituparna Ghosh
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