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Excavators pile coal in a storage area in an Indonesian Power Plant in Suralaya, in Banten province January 20, 2010.
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JAKARTA, Jan 4 (Reuters) – Indonesia has warned that its coal supply situation remains critical, ahead of Wednesday’s 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, on Saturday banned exports for January to avoid outages atits domestic generators.
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. read more
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China’s benchmark thermal coal futures rose by as much as 7.8% in the first day of trading since the policy was announced and closed at 713.80 yuan ($112) a tonne, up 6.4%. read more
That was the biggest daily increase since Oct. 19, when prices climbed to a record 1,848 yuan a tonne amid a supply deficit in China caused by shortages from domestic mines.
Late on Monday, Indonesia’s state-owned electric utility Perusahan Listrik Negara (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.
Some smaller miners have declared force majeure on their shipments, the legal term for when a supplier cannot meet a contract because of forces beyond their control, coal traders based in Singapore and India said on Tuesday.
The firms that declared the force majeure were mostly ones who had not fulfilled the so-called domestic market obligation (DMO), a coal mining executive in Jakarta said.
Under the DMO, miners are required to sell 25% of their output to local power plants at a maximum price of $70 per tonne.
Indonesian President Joko Widodo threatened on Monday to revoke the business permits of miners who failed to met their DMO requirements.
The export ban endangers Asia’s economic powerhouses China, India, Japan, and South Korea, which together received 73% of Indonesian coal exports in 2021, shiptracking data from Kpler showed.
Indonesian authorities are set to reexamine the export ban on Wednesday.
FULL-MONTH BAN UNLIKELY
Pandu Sjahrir, chairman of the Indonesian Coal Miners Association, said on Monday the group’s ten biggest members will help PLN close the supply gap as a “very short-term solution”.
Indonesian miners met with the trade ministry for discussions again on Tuesday, said an industry group source. “The government is trying to make the exports work … the main priority is availability of coal supply to PLN,” the source said.
Because of the major producers’ willingness to work with PLN to resolve the issue, a full-month ban might be avoided, said Rory Simington, principal analyst for Asia Pacific coal research at Wood Mackenzie.
“A halt in Indonesia’s exports would have a major impact on thermal coal markets but a total ban for January is unnecessary and unlikely to be implemented in our view,” Simington said.
“We are expecting 40 million tonnes of Indonesian exports in January and total domestic demand is in the region of 12 million tonnes; addressing any shortfall would require only a fraction of total capacity,” he added.
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,” 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 over 15% 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% on Tuesday, the most since July 16.
($1 = 6.3731 Chinese yuan renminbi)
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Reporting by Fransiska Nangoy and Bernadette Chrisitina Munthe in Jakarta; Additional reporting by Sudarshan Varadhan, Beijing bureau; Editing by Ed Davies and Christian Schmollinger
Our Standards: The Thomson Reuters Trust Principles.
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Read More: Indonesia warns coal supply crunch not over as China prices rally