Indonesia hopes to end the export ban and ensure the vitality of coal supply

Indonesia’s state-owned utility company received an additional supply of 7.5 million tons of coal on Tuesday, helping to avoid power outages, increase inventories and increase the chance that the government will soon lift the export ban.

The island nation is the world’s largest exporter of coal for power plants and China’s largest overseas supplier. It announced on Saturday that it would ban exports in January to avoid power outages in domestic generators.

The move pushed up coal prices in China, but the Indonesian authorities will review the ban on Wednesday.

The national utility company Perusahaan Listrik Negara (PLN) said that although it has received additional supplies, its goal is to continue to increase its inventory to the minimum usage level of 20 days.

PLN CEO Darmawan Prasodjo said in a statement: “Coal-fired power plants in crisis are beginning to see their supply problems resolved.”

A PLN spokesperson could not immediately comment on how much PLN is needed to supply the expected inventory levels. PLN had previously stated that it needed 5.1 million tons of additional supply in January to avoid widespread power outages.

Pandu Sjahrir, chairman of the Indonesian Coal Miners Association (ICMA), said that the 10 largest members of the organization will help PLN close the supply gap as a “very short-term solution.”

‘Complete prohibition’

Rory Simington, chief analyst of Wood Mackenzie Asia Pacific Coal Research, said that through this coordination, a month-long ban can be avoided.

“Indonesia’s suspension of exports will have a significant impact on the thermal coal market, but in our view, the January comprehensive ban is unnecessary and unlikely to be implemented,” Simington said.

“We expect Indonesia’s exports in January to be 40 million tons, and total domestic demand is about 12 million tons; only a small part of the total capacity is needed to resolve any shortages,” he added.

ICMA said in a statement on Tuesday that the organization is discussing issues with the government and cooperating with members to fulfill domestic obligations.

It said: “We are optimistic that the supply shortage of some power plants can be resolved soon, and we hope that exports can be gradually reopened.”

The organization stated that distribution was affected by difficulties in ensuring that ships transport coal to the national utility company.

“The main obstacle to the acceleration of supply distribution in this area is the availability of barges,” it said.

China Coal Futures, The world’s largest fuel consumerThe surge on Tuesday indicated that export bans could threaten the energy security of some of the world’s largest economies.

Joko WidodoIndonesian President Joko Widodo threatened to revoke the permits of miners who do not supply more coal to local power plants [File: Achmad Ibrahim/AP]

Since the policy announcement, China’s benchmark thermal coal futures have risen 7.8% in the first trading day. Futures closed at 713.80 yuan (US$112) per ton, up 6.4%.

This is the most significant one-day increase since October 19, when a shortage of domestic mines led to a shortage of supplies in China, and the price climbed to a record level of 1,848 yuan (US$291) per ton.

If it continues after Wednesday’s review, Indonesia’s ban may force China to reconsider its unofficial import restrictions on Australian coal.

“If Indonesia’s coal export ban is to be extended, China will need to turn to Australian coal again, and the latter is the main beneficiary of the Indonesian coal export ban,” said Sabrin Chowdhury, an analyst at Fitch Solutions, a subsidiary of Fitch Group. .

Coal traders based in Singapore and India said on Tuesday that some small-scale miners in Indonesia have declared force majeure for their goods, which is a legal clause where suppliers cannot fulfill their contracts due to uncontrollable forces.

A coal mine executive in Jakarta said that most of the companies that declared force majeure were those that did not fulfill the so-called domestic market obligations (DMO).

According to regulations, miners must sell 25% of their output to local power plants at a maximum price of $70 per ton.

Indonesian President Joko Widodo threatened on Monday to revoke the operating permits of miners who failed to meet DMO requirements.

Ship tracking data from Kpler shows that the Asian economic powerhouses China, India, Japan, and South Korea together received 73% of Indonesia’s coal exports in 2021.