Last October coal reserves at 504 Chinese electricity producers were at their highest in two years, namely at 77 million tons (equivalent to 24 days). However, in the remainder of the year Chinese coal imports are expected to rise due to cold weather conditions amid the winter period.

So far this year (January-October 2017 period), China imported a total of 226.1 million tons of coal, up 12.1 percent (y/y) due to rising coal demand from Chinese power plants. About half of China's power generation relies on coal (despite the country having the largest hydropower, wind power and solar power capacity in the world).

Coal prices are currently basically determined by coal mining policies in China. When it wants to raise the coal price (in order to improve the corporate earnings and financial situation of local coal miners) it simply imports more coal. On the other hand, when coal prices are high enough it will consume more domestically-produced coal (leading to sliding prices). It is assumed that China wants to keep coal prices in the range of USD $75 - 86 per ton.

Meanwhile, China is expected to replace its high sulfur coal from local mines (that are partly responsible for air pollution in the world's second-largest economy) for Indonesian-made low-sulfur coal (that has less emissions). The impact is already felt: coal exports from Indonesia to China amounted to USD $1.68 billion, surging a whopping 63 percent (y/y) in the first nine months of 2017.

Regarding Indonesia's total coal exports, analysts expect to see an increase to 370 million tons in full-year 2017, up slightly from 365 million tons in 2016. Meanwhile, Indonesia's overall output is expected to reach 479 million tons in 2017 (compared with 459 million tons in the preceding year).

Meanwhile, Indonesia's key thermal coal price (in Indonesian: Harga Batubara Acuan, HBA) - the benchmark monthly price set by the Energy and Mineral Resources Ministry (and which is based on domestic and international coal indices) - jumped 12 percent (m/m) to USD $94.80 per metric ton in November 2017. The HBA price for thermal coal forms the basis for determining prices of 77 Indonesian coal products and calculating the royalties that coal producers need to pay for each metric ton of coal sold.

Indonesia, the world's biggest thermal coal exporter, may see a 16 percent (y/y) increase to 109 million metric tons in coal consumption this year due to rising demand from its domestic power stations (mostly driven by demand growth from state-owned electricity utility Perusahaan Listrik Negara, PLN).

Indonesian Government's Benchmark Thermal Coal Price (HBA):

Month  2012  2013  2014  2015
 2016  2017
January 109.29  87.55  81.90  63.84  53.20  86.23
February 111.58  88.35  80.44  62.92  50.92  83.32
March 112.87  90.09  77.01  67.76  51.62  81.90
April 105.61  88.56  74.81  64.48  52.32  82.51
May 102.12  85.33  73.60  61.08  51.20  83.81
June  96.65  84.87  73.64  59.59  51.87  75.46
July  87.56  81.69  72.45  59.16  53.00  78.95
August  84.65  76.70  70.29  59.14  58.37  83.97
September  86.21  76.89  69.69  58.21  63.93  92.03
October  86.04  76.61  67.26  57.39  69.07  93.99
November  81.44  78.13  65.70  54.43  84.89  94.80
December  81.75  80.31  69.23  53.51 101.69

in USD/ton
Source: Ministry of Energy and Mineral Resources