Indonesia halts January coal exports

Indonesia has suspended thermal coal exports for January in order to divert supplies to domestic utilities that are grappling with acute shortages, and to avoid widespread blackouts that could cripple economic activity.

The unprecedented move by the world's biggest thermal coal exporter has fuelled uncertainty in the seaborne market as the decision will block shipments to key consumers such as China ahead of the peak winter demand season, even with deals already concluded to secure prompt cargoes. The step could infuse another round of price volatility after spot prices more than halved after hitting multi-year highs in late October 2021

Argus assessed GAR 4,200 kcal/kg (NAR 3,800 kcal/kg) coal at a historical high of $154.21/t on 22 October 2021 after a historical low of $22.40/t on 11 September 2020. The market was last assessed at $60.41/t fob Kalimantan on 31 December.

The decision to ban exports follows calls by authorities in recent weeks to coal producers to meet their domestic market obligations (DMO), under which suppliers have to dispatch at least 25pc of their output to the domestic market. The export ban comes as a number of utilities are said to be holding barely four days of coal stocks after heavy rain in parts of Indonesia's key Kalimantan producing region also curbed output.

The supply of coal to domestic utilities is currently critical and very low and could have an impact on the national electricity system, Indonesia's energy ministry (ESDM) said late on 31 December. Thermal coal that has already been loaded onto ships or is lying at loading ports should be diverted to utilities, it said.

The coal mining industry called the decision as "not appropriate" as it could disrupt 38mn-40mn t in monthly coal production and affect cash flow of producers, Indonesian coal mining association (APBI) said.

A number of Indonesian coal suppliers have already declared force majeure citing the ban. The decision will also affect shippers as they could incur $20,000-40,000/day in demurrage costs, while the government could face about $3bn/month in foreign exchange losses on top of losses in royalty and other revenues, the APBI said.

The suspension of coal exports will be evaluated and reviewed on realisation of supplies to state-controlled utility PLN and its subsidiaries and other independent power producers in the country, the ESDM said.

The decision could also hamper Indonesia's plans to boost output this year. Last month, the ESDM forecast that coal producers could raise output to 637mn-664mn in 2022, based on preliminary discussions with coal mining companies and other industry stakeholders. The country's coal production target for 2021 was set at 625mn t. But cumulative output last year stood at 611.42mn t, according to ESDM data. Reporting lags mean that the government frequently revises historical figures, so production may have been higher than the data currently suggests.

A combination of factors such as weather-related disruptions and a shortage of heavy mining equipment are among the reasons cited for lower-than-targeted output last year. In August 2021, Indonesia announced plans to tighten regulations for coal mining firms that fail to meet their DMO, including potentially banning producers from exporting coal.

By Saurabh Chaturvedi