Global thermal coal supply plummets as Indonesia suspends exports

A shock decision by the Indonesian government to suspend some thermal coal exports to guarantee domestic supply could have a flow-on effect for Australian miners locked out of the Chinese market.

Key points:

• The Indonesian government has suspended some thermal coal exports for the month of January
• Flow-on effects are expected for Australian miners locked out of the Chinese market
• China may reassess its relationship with Australia as a result of the export ban

Indonesia is the world’s largest exporter of the commodity, trading as much as 40 per cent of the world’s thermal coal freight and sending 400 million tonnes in 2020.

But laws require mine operators to prioritise the state-owned domestic power generator at below-market prices of around $US70 per tonne, well below the Newcastle coal futures for January which soared to a 10-week high of $174.

Indonesia has banned exports for January, disrupting as much as 30 million tonnes of coal, citing low supply levels at power stations it claims could lead to blackouts.

The flow-on effects are most likely to be felt in the archipelago nation’s main trading partners of China, India, Japan, and South Korea.

MineLife senior research analyst Gavin Wendt said while a surprise to the market, the decision should not be a shock as the policy mirrored Jakarta’s economic nationalist agenda.

“We’ve seen this in the past, in terms of recent years, with the government restricting and effectively blocking the export of raw materials.

“They want to generate a value-added component, not just be an upstream supplier of raw commodities for export.”

Supply scramble
The decision leaves power-hungry India and China in limbo as Indonesia’s mine lobby desperately seeks dialogue with the government on overturning the ban.

China’s energy woes have been exacerbated by its ban on Australian coal imports, with difficulty sourcing high-quality imports of both metallurgical and thermal coal from neighbours persisting.

Mr Wendt said an opportunity for Australia’s mine sector to re-enter China could follow.

“I would think that there’s certainly the opportunity for a reopening of dialogue between China and Australia with respect to our thermal coal exports. It depends on how sustained this is and whether Indonesia sticks to its guns.”

High prices to continue
As the post-pandemic economic boom shows little signs of abating, the energy markets are predicted to stay strong through the remainder of the year as uncertainty over coal, gas, and oil supply lingers.

“You have to bear in mind, of course, that markets are already nervous going into the new year about the supply side. Demand is very, very high,” Mr Wendt said.
Source: ABC