January 21, 2022 - With Asian buyers deprived of Indonesian thermal coal supply for more than three weeks due to a blanket ban on exports, market participants expected a short-term upswing in spot prices amid anticipated supply tightness due to order backlogs of January.
Miners remained optimistic and expected prices to remain bullish as they focus on clearing pending order backlogs before initiating new deals in the aftermath of the ban.
"Prices will remain high for a while, especially as the rain still persists in Australia and Indonesia. Buyers who want prompt cargoes will need to pay higher prices," an Indonesia-based miner said.
Another miner said the available cargoes will not be enough to meet the seaborne demand that is expected to gush in February, which will result in subsequent supply tightness and rise in prices.
The price of Indonesian 4,200 kcal/kg GAR averaged $68.027/mt FOB in December 2021, S&P Global Platts data showed. The price rose from $63.45/mt FOB on Dec. 31 to $68/mt FOB on Jan. 20.
"We are raising our target price for all the grades," an Indonesia-based producer said.
Traders also expected a temporary spike in prices due to pent up demand, but said it is likely to be countered by the availability of enough LNG cargoes in the market and modest appetite from major consumer China.
"The key risk is spot prices are now quite expensive, so import demand destruction is likely if prices continue to rise," said Matthew Boyle, manager global coal, Asia Power and Dry Bulk Freight with S&P Global Platts Analytics.
Indonesia banned coal exports in January to prioritize domestic supplies as inventories ran low. The ban was eased Jan. 20 for 139 companies who had fulfilled their domestic market obligation, which requires them to supply 25% of their annual production locally at a capped price.
Meanwhile, tight export rules including a review of domestic supply monthly rather than on an annual basis is also expected to put pressure on Indonesian miners to keep coal aside for local supplies.
Traders also pointed out that Kalimantan lacks the infrastructure to ramp up production immediately to meet the seaborne demand that will now stream in. Additionally, ships may not be instantly available for loading for overseas shipment as they will take a while to complete domestic unloading.
"Once the Indonesian coal export ban is lifted in February, we will start to see a rise in Indonesian spot coal prices. We do not expect a large uptick in spot coal import demand or supply in February or March, as production continues to be impacted by heavy rainfall, and producers will need to make up lost cargoes before they are able to supply once again into the spot market," Platts Analytics said in a report Jan. 18.
Chinese Demand Uncertainty
Indonesian miners cited depleting stockpiles at Chinese ports and utilities to suggest that buyers would try to secure deals as the ban eases.
Stockpiles at Qinhuangdao stood at 4.77 million mt Dec. 30, 2021, which fell to 4.10 million mt as on Jan. 20, according to sources.
Meanwhile, the world's largest coal producer's December output increased 9.34% on the year to 384.67 million mt, data from National Statistics Bureau of China showed. Its November production stood at 380.84 million mt.
"China has not made any noise about the ban and their production is quite high. We don't expect them to purchase before mid-February, in any case," a Singapore-based trader said.
"We are not seeing a hurry for coal procurement from India or China and that means [spot] prices may not rise beyond $65/mt FOB for 4,200 kcal/kg GAR [of Indonesian origin]," the trader added.
Australian Prices Extend Gains
Coal from other origins like Australia reaped the benefits of no sales from Indonesia as buyers sought replacement coal.
However, wet weather conditions and the spread of the omicron variant further aggravated supply woes and supported prices.
The price of 5,500 kcal/kg NAR with 23% ash averaged $99.577/mt FOB in December 2021, Platts data showed. It then spiked to $136.05/mt FOB Jan. 19 from $103.50/mt FOB on Dec. 31.
"However, we do not expect Australian spot prices to continue to rise as it is likely that they could decline and fall back to the similar price trend evident due to the China-Australia trade dispute," the Platts Analytics report added.