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Singapore — Indonesia has directed thermal coal mining companies holding the Izin Usaha Pertambangan, or IUP, mining license in East Kalimantan to cut production this year after these companies failed to fulfill their domestic market obligations, stoking fears of an imminent supply tightness in the near term, market sources said Tuesday.

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The Ministry for Energy and Mineral Resources, or MEMR, is sanctioning miners who did not fulfill sufficient domestic sales in 2018, imposing a collective 52% cut in East Kalimantan's coal production.

In a notice, the ministry said that out of the 69.6 million mt collectively produced by IUP holders last year, only 8.3 million mt was directed to the domestic market.

The Indonesian government had directed miners to allocate at least 25% of their total production to the domestic market last year.

A Singapore-based trader did not expect the notice to be implemented.

"It is the election year in Indonesia," he said. "A production cut means there will be fewer jobs."

An Indonesia-based producer vouched for the authenticity of the notice as he said it was based on a letter from the central government to the provincial governor.

"As long as this order is being enforced, there will be a huge impact on the seaborne market," he said.

However, he added that it is too early to provide an outlook on seaborne thermal coal prices as South Kalimantan and South Sumatra could receive additional quotas to counter the production cut.

Another Indonesia-based trader said that most of the mines in East Kalimantan had some inventories to clear and the impact of this production cut may only come into full force in the next few weeks as the stocks clear out.

He added that rains in East Kalimantan had continued to impact production.

"The coal has been moving this year, but the miners still have some cargoes left. There has been no fresh production due to the rains," he said.

-- Fred Wang,

-- Edited by Norazlina Jumaat,