Coal news and updates

Indonesian thermal coal prices are expected to sustain their strength in the near to medium term amid government policies that are likely to disrupt supply flow, industry sources said at a coal gathering held Tuesday in Jakarta.

 

"The [coal] sector feels quite healthy, unlike 18 months ago," Pandu Sjahrir, chairman of the Indonesian Coal Mining Association, said.

 

Thermal coal prices have been on a rise since the second half of 2016 due to strong Chinese demand and supply tightness at various production sites.

 

S&P Global Platts' FOB Kalimantan 4,200 kcal/kg GAR coal price has surged 34% since the start of 2017, to be assessed Monday at $49.60/mt, the highest level seen in about 14 months.

 

One of the major issues among thermal coal buyers and sellers is the implementation of Ministerial Regulation No. 82/2017, which requires all coal export and import activities to use national maritime shipping and domestic insurance services, starting April 26, 2018. 

 

Non-compliance of this rule may lead to suspension or revocation of licenses. 

 

Bill Sullivan, senior foreign counsel with Christian Teo & Partners, pointed out that while gray areas concerning this regulation -- such as whether business or export license would be suspended or revoked -- have yet to be clarified, the move could have detrimental impact on Indonesia's position as a top coal exporter.

 

"It provides no incentive for reduced costs or improved performance by national shipping and national insurance companies and makes Indonesia's coal export less competitive," he said.

 

Indonesia's Ministry of Energy and Mineral Resources aims to produce 485 million mt of coal in 2018.

 

According to Sjahrir, the current number of national vessels would only be able to handle around 40 million mt. 

 

"This could lead to force majeure [situations]," he said.

 

Many of the available vessels are foreign-owned and many have long-term contracts with companies. 

 

Additionally, Bob Kamandanu, former chairman of ICMA, said that buyers normally would not sign a contract if they could not assign their own vessel.

 

Sjahrir added that the transition of some mining companies from holding coal contracts of work to mining licenses or IUP were bound to shift production strategies and "change the face of the [coal] industry."

 

The government had set out amending contracts of a number of coal mining companies in mid-January.

 

These supply disruptions were likely to keep prices relatively stable at firm levels, Sjahrir said. 

 

HIGHER PRODUCTION

 

High thermal coal prices have encouraged higher production targets, Ben Lawson, COO of Sanaman coal, said.

 

If the prices stay firm, he said that Indonesia's output could likely even hit 500 million mt this year -- barring rains that could hamper production.

 

He noted that Indonesia has had two straight years of rain now, and the tightness in supply has coincided with colder temperatures in China, resulting in higher prices.

 

But he cautioned that the market, both on the buy and sell side, remained at risk of policy-related volatilities, citing the Chinese government's tendency to intervene when domestic coal prices increase too much as an example.

 

S&P Global Platts' FOB Qinhuangdao 5,500 kcal/kg NAR coal price hit Yuan 760/mt FOB on Monday, which was "far from China's comfort level of below Yuan 600/mt," Lawson said. 

 

So, a government intervention from China was imminent, he added.

 

Source: platts