A Perfect Storm For Indonesian Steam Coal Exports

 

The Indonesian steam coal industry has been one of the primary contributors to fulfilling the global demand for coal. However, it’s been noticed in recent times that the need for coal in the Asian bloc has drastically decreased. There are many factors in place for this sudden change, but the Indonesian authorities seem to make the exports stable. Looking at the number, it’s evident that 40% of global seaborne steam coal exports since 2010 have been dependent on the Indonesian coal reserves. 

 

However, a major change occurred in the early part of the year 2015 when the Indonesian exports dropped up to 10% due to the lack in the interests of the global parties and a few local disruptions that brought a sheer jolt in the market value of the Indonesian coal industry. Another critical factor that has played a pivotal role in this inevitable change and is the subpar quality of Jakarta’s main coal supply.

Since then, the Indonesian think-tank has been making efforts to bounce back with better management and trying to rope in different potential buyers. No improvement was seen till the authorities decided to decentralized the fragmented to kick start the coal mining till later 2016.

 
The Problem 

 

The Indonesian coal market remains one of the most fragmented coal hubs and produces comparatively low-quality coal, mainly shipped to Asian countries, including India. In 2015, it was noticed that country’s coal exports saw a drop of a four-year low of 366mt, with few indications of a recovery in the following years, mainly because of the declining reliance of Asian countries on defective coal products. Some experts say that a whopping shift in renewable energy might also be one of the reasons as the world has been shifting towards far more sustainable ways of power production. 

 

Price 

 

Decreasing demand for the Indonesian coal reserves has pushed the miners to an all-time low in the past years since 2015. The miners were put in a situation where the Indonesian CFR steam coal spot price (4,900kcal NAR) had dropped to $42/t, down 27% y-o-y. Various reports suggest that between 70-90% of Indonesian coal miners are currently operating at a loss, which is likely to result in further significant cuts to output in the upcoming years. 

 
Domestic Elements 

 

In addition to the Indonesian coal crisis, the preparators for the lack of demand are not only the international buyers. It was reported that the erupting fires in the past few years in Sumatra had pushed the coal producers to suspend the entire output, coinciding with a crackdown on illegal coal mining, which is responsible for producing 50-90mt per year. 

 

Recently, a series of piracy events resulted in the suspension of consignments from Kalimantan; however, the Indonesian authorities have since answered by ramping up naval patrols. There have been many attempts to boost Indonesia’s declining coal market, including the abandonment of a planned hike in royalties and investment in domestic thermal power projects. The government has been taking initiatives to support small miners, so they can use the support to build up their mining capabilities to a point where they are self-sufficient on all fronts. A large chunk of the support comes from subsidized mining costs from the coal regulating authorities. The government has also planned to induct a financial bail-out for the miners to support the dying demand in the national coal reserves. Different sources report that the authorities are planning to buy many coal products from the producers that would be used to fulfill the power requirements for Jakarta and other parts of Indonesia. 

 

Future 

 

When we look at the current deficit faced by Indonesian coal production, things might not seem very favorable. Although, all hope is not lost as government-sponsored entities are in a continuous process to lend their support to the declining Indonesian coal markets. Some Asian countries have also lent their unconditional support to being Indonesia out of this financial nightmare. We can hope that Indonesian steam coal suppliers will survive through this, and we will be looking at a stable demand for the Indonesian coal supply in the years to come. The main idea is to make the market float and avoid any restrictions that might force the Indonesian miners out of business. It is a good sign that the countries that have not invested in the carbon-free means of energy productions can become potential customers for Indonesian coal, providing the producers an opportunity to rely on the foreign exchange they are willing to spend on the coal resources.