Viewpoint: Indonesian coal sellers plan amid volatility

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Singapore, 31 December (Argus) — Regulatory obstacles in Indonesia could hamper coal production in 2019 and uncertainty about Chinas import policy could also curb exports, even though a number of producers have announced tentative plans to raise output in the coming year.

A period of high prices that began in 2016 and lasted throughout much of 2018 on strong demand from main buyers China and India has prompted Indonesian producers to raise output where possible and several mining companies have announced plans to raise production even further in 2019.

Chinas coal consumption rose during 2018 on increased demand from its electricity, steel, construction and chemical industries. Total imports of all types of coal reached 271.19mn t in the first 11 months, already narrowly exceeding the countrys import quota for full-year 2018, which had been set at parity to 2017 imports. Indias overall imports have also been driven up by surging power demand amid industrial and manufacturing growth, with its imports of Indonesian coal amounting to the lions share at 92.4mn t in the first 11 months, or just under 93.17mn t for full-year 2017, according to customs data.

Indonesia exported 356.5mn t of all types of coal in January-October, up by 35.5mn t from a year earlier, according to the latest data from government statistics agency BPS. This could theoretically put exports at an annualised rate of around 427.8mn t for 2018, although the Argus Seaborne Thermal Coal Outlook has forecast these exports at closer to 415mn t, given the weaker China seaborne demand from November. But even projected Indonesian exports of 415mn t would substantially exceed those of 2017 when Indonesia exported 389.47mn t, up from 369mn t in 2016.

The government raised the 2018 production target to 507mn t in September, although the Indonesian coal mining association (APBI-ICMA) does not expect the industry to reach this target, given the big drop in prices from November when China announced plans to tighten enforcement of its import quotas. Prices for the most actively traded fob Indonesian GAR 4,200 kcal/kg (NAR 3,800 kcal/kg) coal fell by 33pc from $47.19/t at the start of the year to $30.52/t on 21 December, according to Argus assessments, with the sharpest falls registered last month when a low of $28.73/t was recorded.

APBI-ICMA has also said it expects output to fall slightly in 2019 from 2018 to 480mn-500mn t. The likely total production for 2018 was not provided, although the government revised the production target in September from 485mn t to 507mn t, but did not announce any change to the domestic market obligation (DMO) that had been set at 121mn t.

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