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Indonesia's reference coal price surged in September 2017. Southeast Asia's largest economy's benchmark coal price (in Indonesian: Harga Batubara Acuan, or HBA) soared 9.6 percent month-on-month (m/m) to USD $92.03 per metric ton, from USD $83.97 in August. Indonesia's HBA is now at its highest position since December 2016.
Meanwhile, earlier this week, coal futures (October 2017 delivery) touched USD $95.80 per metric ton on the ICE Futures Europe Index, the highest level since 11 June 2013.
The strong performance of the coal price is expected to last up to (at least) the end of 2017. This impressive recent performance is mainly attributed to rising coal demand, bad weather conditions, and the weakening US dollar.
Deddy Yusuf Siregar, analyst at Asia Tradepoint Futures, said the soaring coal price is caused by a big jump in coal demand. For example, in Queensland (Australia) coal exports rose to its highest level so far this year (at 13.4 million metric tons) in August with particular strong demand originating from Japan.
Coal demand also rose in the United States and China. The US Energy Information Administration (EIA) recently stated that so far in 2017 31.3 percent of electricity generation in the USA stems from coal-fired power plants, while natural gas only accounts for 31 percent of US electricity generation. This is in contrast to 2016 when gas supplied 33.8 percent of electricity in the USA, while coal-fired power plants only contributed 30.4 percent. Secondly, US steel production rose 3.2 percent (y/y) to 60.90 million tons up to 2 September 2017 (coal is also an important energy source for steel production).
Meanwhile, in China steel production rose steeply in July 2017. In July China produced 74 million tons of steel, up 10.3 percent (y/y). Hence, China's coal consumption rose accordingly.
Another factor that is at play here is that the US dollar has shown severe weakness recently amid expectations that the Federal Reserve will not decide to further tighten monetary policy too soon.
Lastly, bad weather is plaguing the Guangzhou harbor in South China and it can therefore not handle its usual coal freight load. Meanwhile, ongoing storms in the USA may also impact positively on coal prices.
Indonesian Government's Benchmark Thermal Coal Price (HBA):
Source: Ministry of Energy and Mineral Resources
Indonesian Production, Export, Consumption & Price of Coal:
(in mln tons)
(in mln tons)
(in mln tons)
Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources