The world’s coal “furnace” that has not yet cooled down has heated up again in the first days of the new year after Indonesia – the world’s leading exporter of thermal coal – announced to suspend the export of this item to give priority to the domestic market. water, avoiding a situation in which the power supply is at risk of being interrupted like China.
Coal prices in China jumped to multi-month highs following the news, amid optimism about the demand outlook for the steelmaking raw material in China, the world’s top steel producer.
The price of thermal coal for May term traded on the Zhengzhou Stock Exchange (China) on January 4 increased by 7.3% to 708 yuan ($111.10)/ton, ending the session still up 5.5 % compared to the previous session, the largest increase since November 25.
Similarly, the price of May coking coal on the Dalian bourse on January 4 increased by 5.7% to 2,337 yuan ($367.74)/ton at the close, sometimes reaching 2,370.50. yuan earlier in the session, the highest since Oct. 28.
The price of coke – coal that has been processed and used as the main reducing agent in the process of smelting iron ore into steel – also increased by 4.8% to 3,047 yuan a tonne, at one point reaching 3,050 yuan. , the highest level since December 27.
“In the short term, steel mills will gradually restore production capacity, which will benefit coal prices,” said Sinosteel Futures analysts. However, with China approaching the traditional New Year holiday, a period of extended shutdowns for manufacturing activities, followed by the Beijing Winter Olympics next month, which will affect demand for steel raw materials.
Indonesia’s coal is not used for smelting, but this important supply shortage will certainly have a significant impact on the coal market in general, spreading to industries that use a lot of coal such as steel and electricity. …Any extension of the export ban from Indonesia, if any, will put upward pressure on not only coal but also fuel oil and coal in the region.
Chinese customs data shows that this market imported 178 million tons of Indonesian coal in the first 11 months of 2021, mainly thermal coal, accounting for more than 60% of the country’s total coal imports.
Indonesia temporarily bans coal exports
The Indonesian Ministry of Energy and Minerals has just issued an official dispatch to temporarily ban coal exports from January 1-3, 2022 for all coal mining and trading enterprises with IUP (IUP) licenses. Mining-Mining Business License); IUPK (Production Operation Special Mining Business License) and PKP2B (Concession Agreement).
Accordingly, the temporary ban on exports to ensure the supply of raw coal for Indonesia’s coal power plants, to prevent the risk of electricity shortage for production and daily life of this country; at the same time forcing coal production and trading enterprises to fulfill the obligation to supply 25% of the total amount of exported coal to the domestic market.
Figures from the Ministry above show that out of a total of 5.1 million tons of coal, coal enterprises are obliged to supply the domestic market according to the Government’s regulations, only 35,000 tons of coal are sold by coal enterprises. This coal supply. This poses a serious risk of power shortage, on a large scale with nearly 20 power plants with a total capacity of 10,850MW that will have to be shut down due to lack of raw materials.
According to data from the Indonesian Ministry of Energy and Mineral Resources, as of December 17, 2021, Indonesia’s total coal production reached 581.17 million tons, reaching nearly 93% of the mining plan target set for the year. 2021 is 625 million tons. Along with that, Indonesia’s coal production as of December 17, 2021 has surpassed 565.69 million tons, which is the total output of 2020.
The Indonesian government said that when the domestic coal supply is fully met, coal producers will be able to resume export business.
Along with that, Indonesia’s coal production as of December 17, 2021 has surpassed 565.69 million tons, which is the total output of 2020.
The announcement of the Government’s suspension of banning coal exports also surprised the community of Indonesian coal producers and exporters. However, it is likely that the Indonesian Government will soon have to consider and adjust this decision due to pressure from the Indonesian coal business and production community.
Preliminary assessment of impact
Indonesia’s export ban comes as the coal market has gone through a tumultuous period following a record price surge last year as a drop in supply from China left some parts of the country without enough electricity. to use, many factories had to stop working because of power outages. Coal futures contract on the Zhengzhou exchange on October 19, 2021 rose to a record 1,848 yuan.
“Indonesian coal is mainly shipped to the coastal regions of east and south China and accounts for about 20 percent of the total supply in the region,” said Zhai Kun, an analyst at Guotai Junan Futures.
“Removing 40% of seaborne coal in a single day, amid peak winter demand, could expose us once again to a rise in coal prices,” the report said. Morgan Stanley and Marius van Straaten wrote.
According to Zhai Kun of Guotai Junan Futures, Indonesia’s export ban will cause a tightening of coal supply in the Chinese market because China’s domestic coal production is already at a record high.
China supplied a record 370.84 million tons of coal to the domestic market in November 2021 to ensure sufficient energy supply for the winter heating season. However, domestic production is expected to decline as power plants slow down the replenishment of stockpiles while the government takes strict action against illegal mining.
“The overall supply cut is certain as many Indonesian miners have declared force majeure,” said a coal trader in Singapore.
In a joint report by Morgan Stanley and Marius van Straaten, analysts say any disruption to Indonesia’s thermal coal exports could lead to a rebound in world coal prices, and forecast The price of high-quality thermal coal at the Australian port of Newcastle will be popular at 140 USD/ton in the first quarter of 2022 after this ban. The price of Newcastle coal rose to $270/ton in October 2021, and is currently at $152/ton, according to data from Morgan Stanley. Such soaring prices are due to tight supplies and countries across Asia struggling with energy shortages.
References: Reuters, Bloomberg
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