There are two key reasons that cause momentum for coal prices: (1) stable coal demand in China as well as rising coal demand in India, and (2) limited coal production due to weather conditions.

Although China is eager to curb coal consumption and reduce its dependence on coal as an energy source, coal demand is expected to remain strong in China throughout 2018, hence supporting coal prices as the world's second-largest economy will need more coal imports. Authorities in China announced that they want to cut 150 million tons of coal capacity in 2018. Last year China managed to cut 250 million tons of the country's coal production capacity.

Meanwhile, India is expected to order more coal shipments amid strong demand from the nation's power generation sector, while domestic coal production in India has been lower-than-expected.

Indonesia is one of the world's biggest coal exporters and therefore benefits from good coal demand in China and India. However, the Indonesian government urges domestic miners to keep the nation's coal production below 485 million metric tons in full-year 2018, 25 percent of which is allocated for the domestic market (the so-called "domestic market obligation" or DMO).

However, despite the high HBA, Indonesian coal miners are concerned about the government's intention of setting a low DMO price. State-owned electricity company Perusahaan Listrik Negara (PLN) wants a fixed (low) price for coal that is supplied to PLN under the DMO. Electricity tariffs in Indonesia are set by the government and due to the rising coal price PLN's production costs for electricity have risen accordingly, hence causing a financial burden for the electricity company (coal-fired power plants contribute nearly 60 percent to Indonesia's power generation capacity). A fixed low DMO price would relieve the company from the financial burden.

The exact price formula for the DMO has not been determined yet but it is expected to be announced soon through a Presidential Regulation. Earlier, PLN recommended a price range of USD $55 - $70 per metric ton for the DMO. Local coal miners, however, objected strongly to this cheap range.

Indonesia's benchmark HBA price is based on Platts Kalimantan (5,900 kcal/kg GAR assessment), Argus-Indonesia Coal Index 1 (6,500 kcal/kg GAR), Newcastle Export Index (6,322 kcal/kg GAR) and globalCOAL Newcastle (6,000 kcal/kg NAR). Each of these four indexes contribute 25 percent to Indonesia's HBA index.

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

Month  2017  2018
January  86.23  95.54
February  83.32 100.69
March  81.90 101.86
April  82.51
May  83.81
June  75.46
July  78.95
August  83.97
September  92.03
October  93.99
November  94.84
December  94.04
Average  85.9

 

Month  2012  2013  2014  2015
 2016
January 109.29  87.55  81.90  63.84  53.20
February 111.58  88.35  80.44  62.92  50.92
March 112.87  90.09  77.01  67.76  51.62
April 105.61  88.56  74.81  64.48  52.32
May 102.12  85.33  73.60  61.08  51.20
June  96.65  84.87  73.64  59.59  51.87
July  87.56  81.69  72.45  59.16  53.00
August  84.65  76.70  70.29  59.14  58.37
September  86.21  76.89  69.69  58.21  63.93
October  86.04  76.61  67.26  57.39  69.07
November  81.44  78.13  65.70  54.43  84.89
December  81.75  80.31  69.23  53.51 101.69
Average  95.5  82.9  72.6  60.1  61.8

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

Indonesian Production, Export, Consumption & Price of Coal:

  2014 2015 2016 2017 2018 2019
Production
(in million ton)
 458  461  456  461  485¹
Export
(in million ton)
 382  323  308  364  371¹
Domestic
(in million ton)
  76   76   91   97  121¹
Price (HBA)
(in USD/ton)
 72.6  60.1  61.8  85.9     -

 

  2008 2009 2010 2011 2012 2013
Production
(in million ton)
 240  254  275  353  412  474
Export
(in million ton)
 191  198  210  287  345  402
Domestic
(in million ton)
  49   56   65   66   67   72
Price (HBA)
(in USD/ton)
  n.a  70.7  91.7 118.4  95.5  82.9

¹ government target
Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources

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