Virus-hit Indonesian thermal coal prices could start slow recovery in Q3: sources

Singapore — Indonesian thermal coal prices, which are grappling with the economic fallout from the coronavirus pandemic, could start to slowly recover from September onwards as market sentiment improves and demand picks up, sources told S&P Global Platts June 5.

Indonesian thermal prices are once again on a downtrend, with the price of the Indonesian 4,200 kcal/kg GAR – or 3,800 kcal/kg NAR – coal falling nearly 10% from May 26 to $27.75/mt FOB Kalimantan June 4.

Market sources have attributed the price decline to sluggish buying sentiment from China, where ambiguous import quotas have dissuaded buyers from importing coal, as well as to weak demand from other Asian countries, where coal stockpiles are still high and power consumption and industrial activities are low.

Market sources noted that inquiries from India were especially sparse, while the latest data from India's Central Electricity Authority showed that stockpiles at Indian power plants were at 49.6 million mt, relatively steady from 49.7 million mt a week ago, with a daily consumption rate of 1.70 million mt, down from 1.75 million mt/day on the week, sufficient for 29 days of coal burn, up 1 day on the week.

Fearing no near-term recovery in demand, many producers and traders are now bracing for the possibility that Indonesian prices may not recoup until at least September 2020.

"When prices [for Indonesian thermal coal] started increasing in May, there was some optimism among producers that they would stabilize north of $30/mt FOB Kalimantan. But now I think that we will not be seeing those levels till at least the last quarter of the year," said an Indonesia-based producer.

Another Indonesia-based trader echoed similar views, saying: "Chinese sentiment [for seaborne coal] has really deteriorated, and if India is not buying now, they will not be buying at least till September, when monsoon ends. Prices may hence only see some support September onwards."

Platts Analytics' Matthew Boyle is also bearish on the coal market in the near term, saying: "There is more downside risk to prices than upside at the moment," and forecasts June prices for the Indonesian 4,200 kcal/kg GAR grade at $24.50/mt FOB Kalimantan.

His forecast prices rose to $28.83/mt FOB for Q3 and $30/mt FOB for Q4, respectively, as he said that the lockdowns that are being lifted now may only support prices after some time delay.

China import curbs

A Singapore-based trader believed that Chinese coal import restrictions have been the key driver of the recent fall in seaborne prices, adding that a lack of Chinese utility tenders and increased hydropower generation have also been important factors.

These factors have negated the upward pressure on price due to supply constrains in Indonesia, brought about by producers having sold out their cargoes during the export price uptrend in H2 May.

An Indonesia-based producer acknowledged that the import quotas are going to remain a relevant factor well into September, saying "it will be difficult to predict if prices will recover later this year, even if there is an economic recovery in other Asian countries, as demand is going to continue being suppressed by these quotas."

Supply tightness

An Indonesia-based producer said that while demand may not emerge in the near future, the downside to Indonesian thermal coal prices may be limited, as it is unlikely that producers in Indonesia are going to increase their production.

"Production was down very significantly in April and May, and producers may keep it that way as current prices yield a nominal profit at best," the producer said.

Indonesian coal production in the month of April and May were 42.83 million mt and 36.42 million mt respectively, down 16% and 28% respectively from March, according to data maintained by Indonesia's Ministry of Energy and Mineral Resources.

Platts Analytics' Boyle, however, said that the market is still oversupplied, and a more aggressive response may be seen from coal producers in Q3.

An Indonesia-based trader agreed but added that till the end of the year, Indonesian prices will follow a cyclical pattern.

"Big miners have already committed to reducing production, but smaller mines will enter and exit according to the price. The price will fall when these miners start producing again, and rise when they stop," the trader reasoned.