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Tepid Demand in China Dampens Indonesian Coal Market Prospects

The Indonesian thermal coal market is currently experiencing subdued demand from its largest buyer, China, owing to an oversupply and significant price disparities that discourage transactions. Despite the looming peak demand period in China, extensive coal stocks at Chinese ports and prompt-delivery cargoes have led domestic power utilities to refrain from restocking. Notably, coal inventories at both inland and coastal power plants in China have reached record levels—up 2.7% from last year and 17.5% higher than in 2022.

Contributing to the decreased demand for imported coal is the extensive rainfall in southern China, which has not only reduced the need for coal-fired power by increasing hydropower generation but also kept industrial activities low, further dragging down coal consumption. The ongoing and forecasted continuous rainfall in regions along the Yangtze River is expected to maintain this trend, further benefiting hydropower at the expense of coal.

Amid these market conditions, congestion at southern Chinese ports has slightly improved, although the discharge times have extended to about 11 days at some ports. This logistical bottleneck, combined with weak consumption and an uncertain market outlook, has prompted several Chinese utilities to cancel tenders for imported coal. For instance, trades for Supramax Indonesian coal rated at 3,800 Kcal/kg NAR recently settled at $53.5 per ton FOB Kalimantan, with offers fluctuating between $52 and $53 per ton FOB.

However, Indonesian sellers are holding firm on pricing, with Panamax cargoes of the same grade being offered at around $55.5 per ton FOB, challenging buyers seeking prices below $55 per ton. This stance has been mirrored in the trade of 4,200 Kcal/kg NAR coal, where offers stood at $55 per ton FOB, despite buyer interest hovering around $52 to $53 per ton.

Non-power sectors in China maintain a rigid demand for Indonesian coal, yet this has not sufficed to uplift prices in the current market scenario. Recent tender results reflect this trend, with a significant discrepancy in bids and the high offers from Indonesia, indicating minimal arbitrage opportunities for traders. For instance, a recent tender awarded coal at rates translating to $48.52 and $45.82 per ton FOB for Panamax and Supramax vessels, respectively—far below the prevailing market offers.

Moreover, the Coal Indices (CCI) for Indonesian coal showed a decrease, with the index for 4,700 Kcal/kg NAR thermal coal at $83.5 per ton CFR South China and $75.0 per ton FOB Kalimantan, reflecting a day-on-day decline. Similarly, the index for 3,800 Kcal/kg NAR coal also saw a decrease, reinforcing the trend of weakening coal prices amidst robust hydropower production and ongoing logistical challenges.

This dynamic between declining demand and stable supply from Indonesia poses significant challenges for coal exporters, urging a recalibration of market strategies amidst evolving energy consumption patterns in one of the world’s largest coal-consuming nations.

Source: SxCoal