Coal news and updates

Indonesia’s new export licence norm to hit India’s imports

October 21: A new rule which has been quietly implemented in Indonesia from October 1, will have direct fallout on India’s coal imports, sources informed ICMW.

The new norm, part of a bid at good governance of the new regime of President Joko Widodo and aiming to crack down on illegal exports, stipulates that all coal exporters in Indonesia need to get a licence of a “listed exporter (Eksportir Terdaftar, ET) from the Energy and Mineral Resources Ministry.

So far, around 98 of the 1,450-odd coal producers in Indonesia have been issued the licences, but more number of licenses are likely to be issued in the coming days, according to reports.

What does this augur for India?

India, which is labouring under its own coal issues, has been watching with interest the developments in the backyard of the world’s largest exporter of thermal coal, essentially because there could be a direct impact on its own coal import volumes!

Coal industry sources here feel there is bound to be an impact. A source told ICMW: “Yes, the new Indonesian norm will impact imports into India. The overall availability of coal will go down by 15-20 percent.”

The source made a pertinent point: “Fortunately, for Indonesia, the shortage phobia created by the Supreme Court judgment to cancel allocation of 214 blocks will result in dependence on increasing imports from Indonesia. In other words, India will be throwing a life-line to the coal mines in Indonesia even though this might come at the cost of reduced availability from our own coal mines.”

Another source observed: “Indonesian coal is cheaper (though of lower quality). Hence, it is a good fuel option, if blended with higher grades, for India’s power plants. If Indonesia wants to concentrate on feeding its domestic market, then I foresee a drop in exports to India by at least 15 percent.”

Indonesia produced 310.8 million tons (mt) of coal in the first three quarters of 2014, a 4 percent growth over the figure recorded in the same period last year. However, this is a slow growth rate compared to the previous years and a part of the government’s conscious efforts to slow down production to curb illegal exports.

Consequently, it has capped this year’s production at 420 mt and wants 90 mt to be absorbed by the domestic industry alone. In the 310.80-mt pie, exports comprised a hefty 234.80 mt slice.

The share of exports to India in Indonesia’s coal shipments basket amounts to one-fifth or roughly 80-100 mt per annum.

Indonesia currently exports almost 70 percent of its coal volumes, mainly to China and India. In September alone, the country exported 25-30 mt of coal, according to data from the Indonesian Coal Mining Association.

A likely decrease in export volumes, under the new ET regime, would mean even lower revenue earnings from the fuel. Coal exports are currently valued at a sizeable $2 billion a month. If this revenue channel is choked, it could widen Indonesia’s current account deficit and undermine investor confidence in President Widodo’s new government, observed a source.

Global coal prices have been on a slow and sustained downward swing for the last few years. Resultantly, Indonesian steam coal prices of varying grades have been languishing between $29.50-$61.60 per ton against the six-month ago levels of $33.10-$66.80 per ton (as per ICMW research) while the Indonesian coal price reference was set at $67.26 per ton in October 2014, down 3 percent from $69.69 per ton six months ago.