Coal Three-Year Low Sees Indonesia Rethink China
Indonesia, the world’s largest exporter of coal for power stations, is looking for buyers beyond China to absorb its growing supply and help spur a recovery in prices from the lowest level since January 2010.
Chinese coal imports will slow next year and shrink in 2014, according to Barclays Plc. Thermal coal purchases by Malaysia, Thailand and the Philippines will rise to 53 million metric tons in 2014, up from an estimated 51 million this year, according to Wood Mackenzie Ltd., which says more than 70 percent of that will be supplied by Indonesia. The nation’s benchmark price slid to a 34-month low of $81.44 a ton in November, data compiled by Bloomberg show.
Indonesia is counting on its neighbors to help consume a planned 10 percent increase in output and reduce its reliance on Chinese buyers who delayed deliveries this year as domestic stockpiles rose to a record. Southeast Asian power stations are expanding and offering alternative destinations for Indonesia’s exports, according to the nation’s coal mining association.
“Indonesian producers had too much of their coal going into China and have learned a good lesson about the risk of over-relying on the Chinese market,” said Bart Lucarelli, the Bangkok-based managing director of Roleva Energy, a consultant whose clients have included Thailand’s energy ministry. “When market conditions weakened earlier this year, Chinese coal buyers forced Indonesian suppliers to reduce their contracted coal prices by very large amounts.”
Indonesia’s reference price for coal with a heating value of 6,322 kilocalories a kilogram was $81.75 a ton this month, the energy ministry in Jakarta said in a statement Dec. 7. While that was the first increase in three months, it’s still down 27 percent this year. The price has averaged $95.48 in 2012, down from $118.40 in 2011. Swaps for coal at 4,900 kilocalories for first quarter delivery rose 30 cents today to $64, according to Ginga Petroleum Singapore Pte, a broker.
The decline has exceeded the drop for coal at the Australian port of Newcastle, the benchmark grade for Asia, which has fallen 19 percent this year, the most since 2005, according to data from IHS McCloskey. Prices were at $90.30 a ton as of Dec. 14 and may average $98 next year, the median estimate of seven analysts in a Bloomberg survey this month showed.
Indonesian suppliers cut contract prices by as much as $15 a ton this year because of pressure from Chinese buyers, according to Lucarelli. Pesona Khatulistiwa Nusantara, which operates three mines in East Kalimantan, was asked to postpone 490,000 tons of shipments to the country out of 600,000 tons contracted for 2012, Jeffrey Mulyono, the company president, said Sept. 4.
Coal stockpiles at China’s largest power utilities climbed to a record 94 million tons as of Oct. 19 as slowing economic growth weakened demand for electricity generation, according to the China Coal Transport and Distribution Association. The nation’s economy grew 7.4 percent in the three months ended September, the weakest pace in more than three years, while power output that month fell to the lowest level since May, data from the Beijing-based National Bureau of Statistics show.
Growth in China’s seaborne imports of thermal coal is likely to slow to 2 percent in 2013 compared with 39 percent this year, Barclays Plc predicted in a Dec. 21 report. Shipments will be 145 million tons, compared with 142 million in 2012, then drop to 110 million in 2014 as improved transport links make it easier for the nation to use domestically produced coal, the bank said.
Indonesia plans to produce 366 million tons of the fuel in 2013, up from an estimated 332 million this year, the country’s energy and mineral resources ministry said Oct. 8. Exports may be 292 million tons, compared with 265 million in 2012, the data show.
Southeast Asia won’t eclipse China anytime soon, according to Kiah Wei Giam, a Singapore-based analyst at Wood Mackenzie, a UK-based consultant to mining and energy companies. The country, which burns coal for about three-quarters of its electricity output, will boost power consumption 6.5 percent in 2013, the Chinese-language 21st Century Business Herald reported Dec. 6, citing an unidentified official at the National Energy Administration in Beijing.
The nation was the biggest buyer of Indonesian coal in 2011, accounting for 25 percent of shipments of 258 million tons, according to data from Indonesia’s energy and mineral resources ministry. Indonesia is also China’s biggest supplier of thermal coal, providing 57 million tons, or 36 percent, of imports in the first 11 months of this year, data compiled by Bloomberg Industries show.
“There is upside for the Southeast Asia market, but the upside is pretty limited compared with China,” Kiah Wei said in a telephone interview Dec. 17. “While the growth in China’s seaborne imports may be slowing down in the near term, the sheer size of the market make it heavyweight.”
China’s industrial production and retail sales in November increased at the fastest pace since March, signaling a rebound from a seven-quarter economic slowdown that may boost coal demand, government data showed Dec. 9. Gross domestic product will expand 8.1 percent in 2013, compared with 7.7 percent this year, according to the median estimate of 49 economists surveyed by Bloomberg from Dec. 13 to Dec. 18.
The nation’s imports of thermal and steelmaking coal were a record 29 million tons in November, up 35 percent from October and 6.5 percent higher than a year earlier, customs data showed Dec. 21.
While thermal coal is used to generate electricity, metallurgical is needed in the process to forge steel.
Indonesian producers are shifting their focus to smaller markets in Southeast Asia where customers are considered more reliable, said Supriatna Suhala, the Jakarta-based executive director of the Indonesian Coal Mining Association.
“The Southeast Asian market has high-quality and dependable buyers,” Suhala said. “They’re not after cheaper prices as is the case with some other buyers. They prefer to sign deals with suppliers who can ship on time and deliver good- quality coal.”
Malaysia’s imports may reach 29.7 million tons in five years, up 29 percent from this year, and 40 million by 2020 as new power plants start, TNB Fuel Services, a unit of the state utility, Tenaga Nasional Bhd, said in Bali last month. The proportion of lower-quality sub-bituminous coal, the grade typically produced by Indonesia, will increase to 65 percent by 2020 from 45 percent now, Mohamad Shaiful Bahri Hussain, the managing director of TNB Fuel, said at the meeting of buyers and producers.
Two power plants in Manjung and Tanjung Bin in Malaysia with a generating capacity of 1,000 megawatts each are scheduled to start by 2016, and another 3,000 megawatts of capacity may be added by 2019, he said.
Vietnam may import 10 million tons of coal by 2015, rising to 60 million by 2020, the Tuoi Tre newspaper reported Jan. 11, citing the Vietnam National Coal-Mineral Industries Group. Vietnam Electricity has started building a 28.5 trillion-dong ($1.4 billion) coal-fired power station in the Mekong Delta province of Tra Vinh as the nation seeks to reduce reliance on hydro power, the government said Dec. 8.
Jakarta-based Berau Coal Energy plans to sell coal to Thailand, Malaysia, the Philippines and Vietnam next year, Rosan Roeslani, the president-director at Indonesia’s fifth-largest coal producer, said at a media briefing Dec. 4. Berau may also start shipping as much as 1 million tons a year to Kuala Lumpur-based Tenaga Nasional starting next year, he said.
“We expect Southeast Asian demand to continue inching upward during 2013 and 2014,” Karim Awad, the Bangkok-based head of corporate-finance transactions at AWR Lloyd, an energy and mining adviser, said in an e-mail on Dec. 7. “While it will be difficult to side-step Chinese buyers, suppliers are conscious of managing counterparty risk, recognizing the benefits from customer diversification where possible.”
— With assistance from Widya Utami in Jakarta and Jing Yang in Shanghai