Indonesian coke producers cut output amid Morowali water shortages, raising coal demand concerns

At least two Indonesian metallurgical coke producers have notified customers of shipment delays and production curtailments following mandatory water rationing at the Indonesia Morowali Industrial Park, raising concerns over coke export availability and seaborne coking coal demand.

In notices issued to customers during the week ended Aug. 22 and seen by Platts, part of S&P Global Energy, the producers cited prolonged El Niño-driven dry weather that had led to critically low water levels and severe shortages across the industrial park.

In response, IMIP has implemented water rationing measures that have reduced operating rates and forced production cuts, the producers said in the notices.

Water availability is critical to Morowali's coke sector, where producers rely on water-intensive wet quenching systems to cool hot coke after production. As a result, water shortages can directly constrain operating rates.

A producer expects water restrictions to reduce coke oven utilization rates from its earlier 85% to 50% in September, lowering its coking coal requirements by an estimated 220,000 metric tons.

"This might last quite a while, we think, extending over one to two months," the producer said. "This substantial reduction in production would mean a considerable amount of coking coal will be in excess."

The producers said the cuts would affect deliveries. One company advised customers to expect shipment delays of five to 10 calendar days and cautioned that disruptions could worsen if dry weather conditions persist.

The cuts across multiple producers could have wider implications for export availability, should the restrictions be in place through September and October, market participants said.

The Morowali-based producers added that reduced coke output could eventually affect coal procurement and logistics.

"Potentially we may ask for cancellations in [coal] shipments, postponement, or even redirect them to the resale market," one of the coke producers said.

The comments suggest the impact could extend beyond the coke market and into seaborne metallurgical coal trade flows. Morowali's coke producers are significant consumers of imported coking coal, and sustained reductions in operating rates could leave producers with excess coal inventories, prompting shipment deferrals, cargo cancellations or spot-market resales.

Market participants said the possibility of deferred coal cargoes or additional resale volumes would be closely monitored by suppliers, traders and shipowners in the coming weeks, particularly if water shortages persist into September and October.

Attention is also turning to India, a key destination for Indonesian merchant coke exports. Trading sources said prolonged disruptions could tighten prompt coke availability and cause buyers to seek alternative supply.

Indicative offers for November-loading 65/63 CSR coke were at $310/metric ton FOB Indonesia Aug. 24, compared with $285-$290/mt levels cited by local suppliers a week earlier.

The ultimate impact will depend on the duration of the water shortages. With multiple producers planning to operate at about 50% capacity, the market is increasingly focused on whether Morowali's disruptions will begin to affect regional coke supply and coking coal trade flows more broadly.