Receive daily email alerts, subscriber notes, and customize your experience.
Indonesia ‘s thermal prices are again on a downward trend, with the price of Indonesia’s 4.200 kcal / kg GAR – or 3.800 kcal / kg NAR – coal falling almost 10% from May 26 to $27.75 / mt FOB Kalimantan on June 4.
Market sources have attributed the price decline to sluggish buying sentiment from China, where unclear import quotas have dissuaded buyers from importing coal, as well as poor demand from other Asian countries, where coal stocks are still high and power consumption and industrial activities are small.
Market reports noted that surveys from India were especially scarce, although recent data from India ‘s Central Electricity Authority showed that Indian power plant stocks were 49.6 million mt, relatively steady from 49.7 million mt a week earlier, with a daily consumption rate of 1.70 million mt, down from 1.75 million mt / day a week, adequate for 29 days of coal burning, up to 1 day a week.
Fearing no near-term recovery in demand, many producers and traders are now preparing for the likelihood that Indonesian prices may not rebound until at least September 2020.
“When prices [for Indonesian thermal coal] started increasing in May, there was some optimism among producers that they would stabilize north of $30/mt FOB Kalimantan. But now I think that we will not be seeing those levels till at least the last quarter of the year,” said an Indonesia-based producer.
Another Indonesia-based trader echoed similar views, saying: “Chinese sentiment [for seaborne coal] has really deteriorated, and if India is not buying now, they will not be buying at least till September, when monsoon ends. Prices may hence only see some support in September onwards.”
Platts Analytics’ Matthew Boyle is also bearish on the coal market in the near term, saying: “There is more downside risk to prices than upside at the moment,” and forecasts June prices for the Indonesian 4,200 kcal/kg GAR grade at $24.50/mt FOB Kalimantan.
His forecast prices rose to $28.83/mt FOB for Q3 and $30/mt FOB for Q4, respectively, as he said that the lockdowns that are being lifted now may only support prices after some time delay.
China import curbs
The Singapore-based trader believed that Chinese coal import restrictions were the key driver of the recent drop in sea-borne prices, adding that the lack of Chinese utility tenders and increased generation of hydropower were also important factors.
These factors have negated the price upward pressure due to supply constraints in Indonesia caused by producers having sold their goods during the H2 May export price uptrend.
An Indonesia-based producer acknowledged that the import quotas are going to remain a relevant factor well into September, saying “it will be difficult to predict if prices will recover later this year, even if there is an economic recovery in other Asian countries, as demand is going to continue being suppressed by these quotas.”
Supply tightness
The Indonesian producer argued that although demand may not emerge in the near future, the downside to Indonesian thermal coal prices may be limited, as it is unlikely that Indonesian producers will increase their production.
“Production was down very significantly in April and May, and producers may keep it that way as current prices yield a nominal profit at best,” the producer said.
Indonesia’s coal production in the months of April and May was 42.83 million mt and 36.42 million mt respectively, down 16 percent and 28 percent respectively from March, according to data maintained by the Indonesian Ministry of Energy and Mineral Resources.
Platts Analytics’ Boyle, however, argued that the market is still over-supplied and that a more aggressive response from the coal producers could be seen in Q3.
The Indonesian trader agreed, but added that Indonesian prices would follow a cyclical pattern by the end of the year.
“Big miners have already committed to reducing production, but smaller mines will enter and exit according to the price. The price will fall when these miners start producing again, and rise when they stop,” the trader reasoned.
