Coal prices moved higher and have higher still to go as Indonesia imposed a temporary ban on coal exports on worries that it will be unable to meet domestic demand.
Reuters reported that President Joko Widodo had also threatened miners with business license revocation should they fail to supply enough coal for domestic consumption.
Indonesia is the world's biggest exporter of thermal coal, and there is concern the ban will be disruptive to the global supply. According to Bloomberg, Indonesia is expected to export 482 million tons of coal, far ahead of the world's second-largest exporter, Australia, with 204 million tons.
"Losing 40% of the seaborne market overnight, in the midst of peak winter demand, could set us up for another coal price spike," Morgan Stanley commodity analysts wrote in a note cited by Bloomberg.
Coal has rallied substantially this year amid higher energy demand and tight supplies of natural gas, and coal exporters have enjoyed windfall profits as the world-even Europe-reverses its negative stance on the most polluting fossil fuel. The rally was ignited by China, which effectively banned imports from Australia amid surging energy demand, although it was later forced to restart purchases of Australian coal.
However, this has also sparked concern about the security of supply, and for Indonesia specifically, it caused lower than usual inventory levels, which was the reason for the proposed ban, as the government worried about the risk of widespread blackouts.
Indonesia already has a protective mechanism to secure domestic supply. It is called a Domestic Market Obligation policy that stipulates coal miners active in the country must supply 25 percent of their output to state utility Perusahaan Listrik Negara, at a maximum fixed price of $70 per ton. To compare, the benchmark Newcastle coal is trading at above $150 per ton at the moment.
The Indonesian government said the ban is not final and will be revisited later this week.
By Irina Slav for Oilprice.com
More Top Reads From Oilprice.com:
Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments