Indonesian government set its February' thermal coal reference price at US$66.89 a metric ton (MT), up 1.5 percent compared to January at $65.93/MT and down 27 percent in annual basis - Photo by DBS

JAKARTA (TheInsiderStories) – Indonesian government set its February’ thermal coal reference price at US$66.89 a metric ton (MT), up 1.5 percent compared to January at $65.93/MT and down 27 percent in annual basis. The rising price was supported by falling coal stockpiles from Chinese mines due to the Lunar New Year holidays and impact from coronavirus.

In the latest report, DBS said in neutral position on the coal sector for 2020 due to lack of upside potential for Newcastle coal price. However, the coal prices will be supported by stable supply and demand from China which imports 10 percent of its coal supply, translating to 250 – 300 MT of overseas coal annually.

It said, excess supply is less likely next year due to coal prices trending downward since 2018. There will be less aggressive mining in 2020 without inorganic growth. Limited financing options will prevent a similar oversupply scenario in 2012 – 2015 from repeating next year.

“We still see value in Indonesia’ coal mining sector due to its low cost structure, constant cash generation and deployment of funds for diversification into power plant and coking coal, and dividends. We believe these factors are often neglected by investors amid a challenging outlook on coal prices,” said DBD at the report.

As example, the agency said, PT Adaro Energy Tbk (IDX: ADRO) and PT Bukit Asam Tbk (IDX: PTBA) in 2020 due to better cost structure to compensate for lower coal price. PT Indo Tambangraya Megah Tbk (IDX: ITMG) looks attractive but only because it is paying dividend due to the lack of room to lower its strip ratio further.

For experts, one of the undeniable main trends the price declines for both thermal coal used to generate electricity and metallurgical coal used to make iron and steel amid the loosening supply and demand fundamentals. Thermal coal prices started trading around $98.56/MT before landed at $66.99  in 2019.

As the year comes to a close, experts predict that this year could be tough for the coal market. According to the International Energy Agency, there are strong regional disparities in the outlook for coal.

“In many advanced economies, coal demand for power is in deep structural decline, hastened by specific phase-out commitments, the continued rise of renewables, competition from natural gas in the United States and higher CO2 prices in the European Union,” its World Energy Outlook stated.

Coal demand is also expected to drop in China, by far the world’ largest coal consumer, due in large part to a strong policy push to improve air quality. However, in other parts of Asia, developing countries are increasing their use of coal to satisfy fast-rising demand for electricity and industrial development.

For FocusEconomics, thermal coal prices are seen remaining subdued long term amid the global shift away from polluting industries. They stated, “However, in the short-term, winter conditions should keep prices relatively steady. A new tariff system in China, which could enter force on Jan. 1, would also support import appetite by lowering raw material prices.”

Analysts polled by the firm project that the price of thermal coal will average $69.10 in fourth quarter of 2020 and the same, $69.10, in the same quarter in 2021.

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