The government has set the country's coal price reference for August at US$72.67 a ton - Photo: Special.

JAKARTA (TheInsiderStories) – Indonesia’ coal reference price showed a downward trend in July 2019, where the benchmark price was set at US$71.92/ton, dropped 11.7 percent compared to last month’s $81.48/ton. The policy of China and India to raise coal production and suppressing imports is one of the factors weakening these prices.

China and India are countries that control most of the demand for importing coal. China accounts for 22 percent of the total demand for world imported coal, while India for 19 percent.

This year, China will raise coal production capacity by 194 million tons. The Chinese coal association has also set a target of increasing production by 100 million tons in 2019.

Likewise India, the volume of domestic coal production is targeted to reach 8.75 percent for the fiscal year 201-20, from 8.1 percent for the 2018-19 fiscal year. In addition, coal availability is abundant as Russia sells coal to the Asian market.

Increasing supply will make the fundamental balance in the market will be disrupted and potentially weigh more on prices. Last month, the World Bank again cut its forecast for global economic growth to 2019 to 2.6 percent from 2.9 percent. It will make the projected energy demand, which mostly comes from coal, potentially weakening.

According to the Ministry of Energy and Mineral Resources, this reference price refers to the international market index, namely the Indonesia Coal Index (ICI), the New Castle Global Coal (GC), the New Castle Export Index (NEX), and Platts59.

The decline in coal prices has begun since September 2018, where the reference price is at $104.81/ton. Then it weakened in the following month to $100.89/ton and continued in November at $ 97.90/ton. At the close of 2018 prices were still weakening at the level of $92.51/ton.

At the beginning of 2019, the downward trend in prices still occurred because the reference price was at $ 92.41/ton. The Chinese government’s policy of limiting import quota was a major factor in the weakening of prices.

Worse, in the first week of June, coal prices fell to $73/ton after comments from the US and China about trade disputes. This condition drives the volume of additional coal to the Asian market.

Basically, the weakening of coal reference prices was also triggered by the increase in domestic coal production capacity, where supply rose from 461 million tons in 2017, up 14 percent to 528 million tons in 2018.

Based on data from the energy ministry, coal production is prioritized to guarantee the fulfillment of domestic primary energy needs. But the realization of domestic coal utilization in 2018 is only 115 million tons or 21 percent. This is below the DMO (domestic market obligation) target which is pegged at 25 percent, even though the number of utilization is up compared to 2017 which was only 97 million tons.

Meanwhile, the government has also set a price for a domestic market obligation (DMO) of $70 valid until the end of 2019 and still continues to look at developments in global coal prices.

This year, the government targets coal production of 489.12 million tons. Until the first quarter of 2019, national coal production has almost reached a quarter of the target set in the 2019 Work Plan and Budget of 116, 23 million tons, equivalent to 23.76 percent of the target production volume.

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