Indonesia suspends coal exports: What is the impact of the pending export ban on China?

21st Century Business Herald reporter Peng Qiang reported from Beijing

The global energy market has not been calm at the beginning of the year, and the sudden coal export restriction policy of indonesia (Indonesia), a major coal producer, has triggered a new round of changes in the global coal market.

In order to ensure domestic coal and electricity supply, Indonesia recently released news that it will completely suspend domestic coal exports and guide local coal suppliers to give priority to the domestic market; Indonesian local officials said that after meeting the needs of the country's market, the coal export restriction policy will be further evaluated.

Indonesia is the largest source of China's coal imports, and analysts point out that whether Indonesia's coal export restrictions will be sustained is still unknown. Due to The low dependence of China's coal on foreign countries and the recent high level of production, the impact of changes in Indonesia's coal export policy on the Chinese market is relatively limited.

Indonesia announced a moratorium on coal exports

On the morning of January 4, most of China's domestic commodity futures opened with an increase, and the black system rose sharply, of which the main thermal coal contract rose by more than 7%, coking coal rose by more than 5%, and coke rose by nearly 4%.

As of the afternoon close, the main thermal coal contract closed up 6.38% at 713.8 yuan / ton; the main coking coal contract closed up 5.67% at 2337 yuan / ton; the main coke contract rose 4.82% to close at 3047 yuan / ton.

On the news side, the recent sudden ban on coal exports in Indonesia, a major coal-producing country, has aroused the attention of the global market.

Indonesia's Ministry of Energy and Mineral Resources issued two consecutive notices on December 31, 2021 and January 1, 2022, explaining the tension in the country's domestic coal supply and the decision to suspend coal exports.

Indonesia's Ministry of Energy and Mineral Resources said in the notice that under the country's laws, the government requires operators with formal mining licenses to give priority to and guarantee coal consumption in Indonesia.

In a notice dated December 31 last year, the Indonesian government required local coal suppliers to supply more than 25% of domestic coal, and the sales price was also set at $70 per ton. However, the provision is limited to coal producers who have contracts with domestic demanders, and enterprises that do not have contracts with domestic coal demanders will be exempted.

Sujatmiko, director of the Coal Business Promotion Department of the Indonesian Ministry of Energy and Mineral Resources, said in the notice that the pricing takes into account the economics of the coal enterprise's business and also makes the electricity bill affordable to the public.

According to the planning of Indonesia's energy and minerals sector, the country's coal demand in 2021 totals 137.5 million tons, of which 113 million tons are used in the power sector and 24.5 million tons are used in the non-power sector.

On January 1, Indonesia's Energy and Minerals Department issued another notice to increase the policy, deciding to restrict coal exports from all coal suppliers in the country throughout January, fully supporting domestic power plants. Indonesia said that if the coal export ban is not implemented, it is expected that nearly 20 large power plants in the country will stop production, affecting the operation of the national economy.

The coal export ban needs to be further evaluated

However, the sudden introduction of the policy has been questioned by many parties, and as a country that is highly dependent on resource exports, Indonesia's ban on coal exports will bring foreign exchange losses, and it remains to be seen whether its policy can continue to be implemented.

In a previous notice, Indonesia's Energy and Mineral Resources Department said it would make further decisions after reassessing the latest situation on Jan. 5.

Citing an analysis by the Indonesian Coal Mining Association (APBI-ICMA), argued that Indonesia's coal export ban could affect coal production of 38 million to 40 million tonnes per month and could cost the government about $3 billion a month in foreign exchange losses.

S&P Global Platts quoted local Indonesian coal producers as saying that producers who expect to meet the ratio of domestic coal supply could have their export bans lifted on Jan. 5, while other miners will announce the suspension of coal export contracts due to force majeure.

Market analysis pointed out that Indonesia's restrictions on coal exports will lead to a decline in coal inventories in many places, which is likely to push up global coal prices in the coming weeks, while Indonesia's coal customers may also turn to countries such as Russia, Australia and Mongolia.

CITIC Securities Research Report pointed out that Indonesia is highly dependent on mineral exports, excessive prohibition of coal exports will lead to an increase in the country's coal inventories, coal prices fell sharply, so the export ban does not have the possibility of extension, and even the possibility of early termination.

The impact on the Chinese market is limited

Indonesia is China's largest source of coal imports, but from the current domestic production capacity and supply and demand fundamentals, indonesia's coal export ban has a limited impact on the domestic market.

Public information shows that Indonesia is the world's largest coal exporter and China's largest source of coal imports. According to the General Administration of Customs, In the first 11 months of 2021, China imported 290 million tons of coal; of which coal imports from Indonesia accounted for 61% of the total imports. However, the overall dependence of domestic coal on foreign countries is not high, and data from the National Bureau of Statistics show that in the first 11 months of 2021, China produced 3.67 billion tons of coal, and Indonesia's coal supply accounted for only about 4% of the country's total coal supply.

CITIC Securities Research Report pointed out that if Indonesia completely bans exports in January, China may increase coal purchases from other countries while reducing Indonesia's coal imports; considering factors such as the sea transport cycle superimposed customs clearance time, it is expected that the actual impact will be reflected from late January to late February. It will coincide with the Chinese New Year holiday, combined with China's coal supply surplus in January and February, China's current coal social inventory has risen to a historical absolute high of 200 million tons, which is expected to basically affect the loose fundamental environment of China's overall coal total.

From the perspective of domestic supply and demand fundamentals, since November last year, domestic coal production has continued to remain at a high level, and since the end of last year and winter, the intensity and sustainability of the cold wave have not been strong, and the growth rate of residential electricity consumption and industrial electricity consumption is less than expected.

GF Securities analyst An Peng believes that before the middle of January is the peak season of winter storage demand in various places, the recent coal mine safety supervision in many places is expected to become stricter, and Indonesia's restrictions on coal exports in January will affect China's coal imports in stages, and it is expected that the supply and demand side of thermal coal will form a support, and the decline in coal prices is expected to slow down or stabilize.

An Peng pointed out that Indonesia's policy of restricting coal exports is still variable, and because there is a time difference in the arrival of resources, the domestic coal supply guarantee policy continues, the power plant inventory is generally sufficient, it is not difficult to fill the gap in Indonesia's coal supply, so the short-term impact on the domestic market is controllable.

Jenny, a thermal coal analyst at the Coal and Coke Division of Shanghai Iron and Steel Union, told the 21st Century Business Herald that Indonesia will re-explore the coal export ban after assessing the coal inventory of the state power company and independent power producers on January 5, so its impact on the global market needs to be discussed after the assessment.

Jenny said that the current global coal market structure is differentiated, high-calorie coal is affected by the weather, coal production and shipment are blocked, the supply continues to be in a tight balance, and the price is easy to rise and fall. Indonesia's low-and medium-calorie coal resources are affected by the low price of China's coal, the price difference between domestic and foreign trade continues to be inverted, and there are only sporadic transactions in the import coal market.

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