Indonesia warns coal supply crunch not over as China prices rally

The price rise is among the first signs of the impact of Indonesia's coal export ban. PHOTO: REUTERS

JAKARTA (REUTERS) - Indonesia has warned that its coal supply situation remains critical, ahead of Wednesday's (Jan 5) review of its export ban, unnerving global markets for the fuel used to generate most of the electricity that drives Asia's biggest economies.

Coal futures in China, the world's biggest consumer of the fuel, surged on Tuesday after Indonesia, the top exporter of the coal used in power plants and China's largest overseas supplier, last Saturday banned exports for January to avoid outages at the generators run by state-owned utility Perusahan Listrik Negara (PLN).

The price rise is among the first signs of the impact of Indonesia's coal export ban, which threatens the energy security of some of the world's biggest economies such as China, India, Japan and South Korea.

China's benchmark thermal coal futures rose by as much as 7.8 per cent in the first day of trading since the policy was announced and were at 712.40 yuan (S$151.50) a tonne. That is the highest since Dec 20 and futures are set for their biggest gain since Oct 19.

Japan has requested Indonesia immediately remove its export ban on shipments of high grade coal and asked that five loaded vessels be given departure permits, its Jakarta embassy said in a letter to Indonesian authorities.

The letter, dated Jan 4 and verified by the embassy on Wednesday, noted that Japan mainly imported high caloric coals which are not used by Indonesian power plants.

Late on Monday, PLN said it has secured 3.2 million tonnes of coal out of the 5.1 million tonnes of additional supply for January it needs to avoid widespread outages.

But, it warned that "this critical period is not yet over", adding that it continued to coordinate with the government and other coal suppliers.

At the same time, Indonesian President Joko Widodo said that coal miners, as well as liquefied natural gas producers, must prioritise domestic supply and ensure energy security in Indonesia before exporting.

He threatened to revoke the business permits of miners which failed to meet a so-called domestic market obligation (DMO) that requires them to sell 25 per cent of their coal output to the domestic market at a maximum price of US$70 (S$95) per tonne.

Finance Minister Sri Mulyani Indrawati said the ban was enacted to avoid disrupting the recovery of Indonesia's economy, South-east Asia's biggest, from the Covid-19 pandemic.

But the decision endangers Asia's economic powerhouses China, India, Japan, and South Korea, which together received 73 per cent of Indonesian coal exports in 2021, shiptracking data from Kpler showed.

Indonesian authorities are set to re-examine the export ban on Wednesday.

The logistics of re-routing coal cargoes to PLN's power stations will be challenging because it will require smaller barges rather than large carriers, said a Singapore-based coal analyst.

Mr Pandu Sjahrir, chairman of the Indonesian Coal Miners Association, said as a "very short-term solution" the group's 10 biggest members will help PLN close the supply gap.

On Tuesday, Indonesian State-Owned Enterprises (SOE) Minister Erick Thohir said in a statement the ministry is working to improve PLN's coal supply management and infrastructure. "We at the SOE Ministry will improve the long-term supply contracts," Mr Erick said, adding that the logistics system and infrastructure would also be upgraded to ensure domestic coal needs are met.

Analysts on Monday warned that India, which consumed more than 15 per cent of Indonesia's 2021 coal exports, might re-route shipments from other suppliers if the ban persists.

That could mean higher demand for coal from Australia, also a major supplier to Asia. Shares of Whitehaven Coal jumped as much as 9.2 per cent on Tuesday, the most since July 16.

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