The uptrend in thermal coal prices will likely continue until Indonesia clears the air on the ban it has imposed on exports of the fuel commodity from January 1. But if the issue prolongs, India, Japan, China and South Korea would be badly affected, while Australia would stand to gain the most, analysts and experts have said.

Also, Indonesia will have to allow exports of coal without much delay to ensure that domestic producers are not financially impacted by the decision. On January 1, Indonesia banned exports of all types of coal as inventories at its power utilities dropped to a precarious low (less than four days).

Surprising markets

Coal stocks dropped sharply at the utilities following rains in the main producing region of Kalimantan affecting production. Indonesia’s ban took the global market by surprise that Newcastle coal futures for delivery this month surged sharply.

During the weekend, January coal futures on the Intercontinental Exchange (ICE) ended at $195.90 a tonne, but May futures ruled at $140.5. On Dalian Commodity Exchange, China, coking coal for delivery in May was quoted at 2,276 yuan ($357.13) a tonne on Monday against 2,288 yuan ($359.01).

Though Indonesia was expected to take a decision on relaxing the ban during the weekend, it remained in force till Monday afternoon. Media reports from Jakarta said the coal shortage had got over but no decision had been forthcoming on lifting the ban despite a key minister meeting the industry representatives.

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China least worried

Among coal importers, China remained unperturbed as its utilities had ample stocks that could see them tide over for a couple of months and also since the oncoming lunar new year would see a drop in demand.

Coal prices, which had hit a record high in October during the global and Chinese energy crises, had begun to wind down last month before the recent Indonesian move sent it spinning upwards.

Fitch Solutions Country Risk and Industry Research (FSCRIR) said in a commentary that Indonesia had asked its coal producers to meet their domestic market obligation of dispatching at least 25 per cent of their output to the domestic market before imposing the ban.

Since then, it has asked the producers to unload their coal from ships that were ready to set sail from the ports and divert them to local utility plants to safeguard energy security, it said.

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Bane for local miners

Fitch Solutions said it expects Indonesia to relax or moderate the coal export ban to some degree in the coming weeks as local coal producers could be affected financially if the ban were to be indefinite.

“As coal sold domestically is priced according to a reference price provided by the Government, which is lower than the international market price, coal producers look towards making profits solely from exports,” FSCRIR said.

The ban will also affect shipping firms that incur demurrage costs of $20,000-40,000 a day, while forex losses could be to the tune of $3 billion a month, besides royalties and other revenues. It would also result in coal production dropping about 40 million tonnes a month, it said.

While ships continue to queue at Indonesian ports, Japan and the Philippines have sought lifting of the ban. “A total ban for the whole of this month is unnecessary and will have a major impact on thermal coal markets,” said Wood Mackenzie principal analyst Rori Simington.

Energy security at risk

Fitch Solutions said: “We expect China, Japan, South Korea and India to be negatively impacted if Indonesia’s coal export were to become indefinite, with China being the most affected.”

This is in view of Indonesia emerging as a key supplier of the energy commodity to Beijing after the latter’s relations with Australia soured in 2020. With China having just overcome its power crisis, any disruption in coal supplies would put the Communist nation’s energy security in jeopardy, it said.

The situation, then, could see Australia benefitting if the ban continues for a while. It could even result in China resuming coal imports from Australia, which will also gain due to demand from Japan, South Korea and India. Russia and South Africa could also gain as a result, FSCRIR said.

Down Under India’s favourite

For India, Australia has already become a favourite coal import source with shipments from Down Under rising manifold last year. Ten days ago, the Adani Group said it has begun loading high-quality coal from its Carmichel mine in Queensland for exports.

Last week, the Adanis won a tender to supply one million tonnes of coal to National Thermal Power Corporation and probably, the Carmichel mine coal will find its way here.