Indonesia coal export ban lowers Pacific freight rates

Asia-Pacific Panamax freight rates have fallen on the back of increased uncertainty, as Indonesia's ban on thermal coal exports for January remains in place.

The Indonesia to Japan rate fell by $1.40/t to $13.30/t today as shipowners reduced offer levels amid a lack of demand in the Asia-Pacific region. Freight rates could be pressured to move lower over the month, if the ban remains in place.

Several Indonesian suppliers have started to issue force majeure notices and have begun rescheduling loading dates as the ban extends to existing contracts, producers who have met domestic market obligations, and loaded coal.

Some vessels have been instructed to divert supplies to domestic utilities. This means around 175 vessels are waiting off Indonesian ports, according to data from shipbrokers BRS, as loading operations for vessels have mostly been suspended.

The number of daily vessels departing from Indonesia fell from about 90 on 1 January to about 20 on 4 January, according to VesselsValue. Daily vessel departures to domestic destinations increased from about 40pc to 85pc over the same period.

Shipowners with vessels in the south China area may prefer to ballast to the east coast of South America, where grain cargo demand is seasonally strong, to replace the lack of demand from Indonesia. The Santos to Qingdao grain rate has increased by 10pc so far in January compared with December 2021.

Indonesia's decision to ban coal exports could have a significant effect on world trade. Indonesia is a major supplier of coal to China since the latter's informal ban on Australian coal, although Chinese utilities appear to be relatively unconcerned by the export ban, given ample local supplies and an approaching industrial slowdown ahead of the lunar new year holiday that officially begins on 31 January.

Indonesian state-owned utility PLN and Indonesia's energy ministry have yet to make an official statement. Discussions will continue over the weekend, according to market participants, and an official update is expected on the evening of 9 January, at the earliest.

Expectations from market participants have grown cautious, as earlier mentions and attempts to lift the coal ban were dashed, as Indonesian state-owned utility PLN doubled coal stocks at its power plants to 20mn t, after it secured a total of 13.9mn t of coal from producers.

Enquiries from India for seaborne coal have increased this week. But most buyers are still adopting a wait and watch approach in relation to the Indonesian ban as prices for non-Indonesian origin coal have risen in line with the rise in demand for prompter-loading cargoes, especially from Japan and South Korea.