The world’s largest coal exporter has introduced an unofficial moratorium on supplies. Indonesian producers have suspended sales on the spot market after authorities suggested reduce production almost a quarter. The government’s goal is to support prices and increase budget revenues against the backdrop of declining demand from major buyers, China and India.
At the end of January, companies were sent production quotas that are 40–70% lower than last year. The Indonesian Coal Miners Association opposed the measures, warning of the risks of mine closures and job losses. As a result, production continues, but not at full capacity, and new batches do not reach the open market.
This situation has already affected world prices. The price of Indonesian low-calorie coal rose by about 7% in January. Analysts predict that if the production reduction is 20%, then prices for this variety could rise by 40–70%. Buyers from Japan, China and South Korea began to actively seek alternative sources of supply, which pushes up quotes for coal from other regions.
At the same time, factors remain that may limit price growth. These include weak demand in key consumer countries and the ability of buyers to diversify imports, for example, by supplying from Russia, South Africa or Mozambique.
Indonesia’s restrictions are creating short-term shortages in the global coal market and putting pressure on prices. Further dynamics will depend on whether the government softens its position under pressure from the industry and how the needs of Asia’s largest economies change.
Source: Reuters
Image: Willy Kurniawan
