JAKARTA (TheInsiderStories) – Indonesian government set the reference coal prices in February at US$87.79 per metric ton (MT) or up by 15.7 percent from the previous month at $75.84 per MT, said the energy and mineral resources (EMR) ministry today. According to the office, the super-cycle sentiment, including gas prices, has strengthened the coal prices.
One of the triggers comes from low interest rates, a weak of US Dollar to economic growth and infrastructure development in various countries. Apart from the super-cycle factor, the main driver was the soaring demand from China caused the domestic coal supply cannot meet the demand for the power plant needs.
As reported, China has announced to lift its import quota for thermal coal by 20 MT of coal until the end of 2020. Last year, the world second largest economy import 300 MT of coking and thermal coal from various countries. Some analysts rated, Indonesia and Russia are likely to get benefits from the increased quota.
The countries are the three biggest suppliers of seaborne thermal coal to China, while Australia and Mongolia dominate exports of coking coal, which is used in steel furnaces. The coordinating ministry for the economic affairs has reported, as of October of 2020, the realization of thermal coal exports only 232.3 MT or 58.88 percent of this year’ targets 395 MT of coal.
The sluggishness also seen from the realization of investment. From the initial target of $7.7 billion, only 27.16 percent or $2.1 billion has been realized. To support the coal export, recently, Indonesian Coal Mining Association and China Coal Transportation has signed a deal worth $1.47 billion to buy 200 MT of thermal coal starting this year.
The analysts from Kiwoom Sekuritas, Sukarno Alatas, assessed this purchase would have a positive impact for coal mining issuers. While, head of research at NH Korindo Sekuritas Indonesia, Anggaraksa Arismunandar, rated that the news give a breath of fresh air for the local miners. Based on his data, issuers that have a portion of sales to China are PT Adaro Energy Tbk (IDX: ADRO), PT Indo Tambangraya Megah Tbk (IDX: ITMG), and PT Harum Energy Tbk (IDX: HRUM).
Earlier, the EMR minister, Arifin Tasrfin, said that the demand for coal in the Indonesian market fell by 20 percent due to the major importer countries policies such as India and China, which prioritize domestic coal production. He emphasized that the COVID-19 outbreak has also resulted in a decline of coal price, global demand, limited access and mobility.
As the impact, he said, the realization of national coal production also fell to 362 MT of coal from a year ago reached 409 MT of coal. MEMR data notes that the realization of coal production in the January – August of 2020 period is equivalent to 66 percent of the national coal production target at 550 MT of coal.
To help the coal producers, Tasrifin has urged the coal producer to prioritize the fulfillment of domestic primary energy needs to support the government’ renewable program. He also decided to continue the domestic market obligation at least 25 percent of the total coal production in 2020.
These provisions are contained in Ministerial Decree Number 261 of 2019 concerning Fulfillment of Domestic Coal Needs for 2020. According to Refinitiv data, China’ coal imports from Indonesia decreased 24.5 percent in the first 10 months of 2020 to 86.88 MT of coal from 115.03 MT of coal in the same period last year.
In the last four months, coal prices have rebounded after experiencing pressure throughout 2020 due to the COVID-19 pandemic. In October 2020 the price stood at $51 per MT of coal, November $55.71 a MT of coal, December $59.65 per MT of coal, and January at $75.84 a MT of coal.
The changes in benchmark price are also caused by the derivative supply and demand that influenced by the weather, mining engineering, country policies, to supply chain such as trains, barges, and loading terminals. Its also influenced by the decreasing demand for electricity, import policies, and competition with other energy commodities, such as LNG, nuclear and hydro.
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