Notes from a Petromindo.com webinar; Coal Market Price Outlook on Impact of Russia – Ukraine Conflict.   Vol 142

On the 26th August 2022, Petromindo.com hosted a half day webinar on “Coal Market Price Outlook on Impact of Russia – Ukraine Conflict”. The event was beamed out of Jakarta, and the presentations were held in English.

I apologize for any errors or omissions. The author is not a specialist in coal trading, wherein this article should not be used for commercial decisions.

Hendra Sinadia, Executive Director of the Indonesian Coal Mining Association undertook the role of moderator. Hendra noted that there is a change in market dynamics with Russian coal diversifying into China and India in competition to Indonesian export coal. However, there are new markets opening up for Indonesian coal into the EU. The Indonesian Coal Miners Association has had a number of visits by EU countries seeking Indonesian coals.

Prof. Irwandy Arif, Special Staff to the Minister of Energy and Mineral Resources for Acceleration of Mineral and Coal Governance, presented on “Implication on Rising Coal Demand in Global Markets to Indonesia’s Coal Production in 2022”. Indonesia’s coal production targets for 2022 are total production of 663 mill ton, of which Domestic Market Obligation (DMO) is 166 mill ton, export of 484 mill ton, with export value of USD 53 billion. Three of the top 10 export destinations for Indonesia coals are China (62 mill), India (61 mill), Philippines (15 mill). Coal exports to EU (Poland, Italy Switzerland Netherlands) is  expected to grow significantly in 2022. Russian coal production increased from 400 mill in 2020 to 433 million in 2021, with top export destinations to China and the EU followed by some East Asia countries. European coal demand is mostly in the >5,500 CV range.  According to Wood McKenzie, global coal demand will increase by 0.6% in 2022.

Mr, Friddie Staermose, Vice President Generation Fuels & Dry Bulks of Argus Media, presented on “Russia/ Ukraine impact on global supply and demand”. Great presentation with numerous detailed slides showing global coal market trends. Russian coals are causing a detached market between high and medium CV coals. The long shipping from east coast Russia to India is placing stress on the global shipping markets, pushing up global freight rates. There is still tightness on the global coal suppliers due to wet weather, rail maintenance (South Africa) and slow supply of large mining equipment. Discounted Russian coal is collapsing the mid CV market. Options for power utilities to switch to gas is still far more expensive than coal. Tight gas supply continues as there is little new LNG capacity coming on. EU coal plants are coming back on stream, and are building stockpiles ready for winter. This is complicated by excessively shallow river barging in the EU due to drought. Russian coal supply coal contract are finishing soon, with EU expected to need coal for the next two years. Germany recently turned off some of its nuclear reactors, and is rethinking the nuclear option. French nuclear plants are keeping much of EU’s lights on. The La Nina global weather pattern is looking like extending into its third year, with rain affecting coal production in Indonesia and Australia along with hot summers and cold winters in the EU.  

Mr. Jimmy Deng, General Manager of Century Commodities Solution (CCS), presented on “Coal Market outlook in 2H Impact of Russia – Ukraine conflict from Chinese perspective”. An overview of the China economy, and power consumption,  is a trend to slow down due to covid restrictions and the drought in reducing hydropower supplies, and impact on some crops. China’s domestic coal production is up by around 16% YoY (around 372 mill tpm), while imports are down by some 21.8% YoY (around 23.5 mill tpm). In June 2022, Indonesia exported 8.5 mill ton (mostly low CV), being an overall decrease of 32.6% YoY, while China imported Russian coal was 4.1 mill ton in June, being an overall decrease of 20.5% YoY. Only recently has coal imports from Indonesia & Russia to China fallen below China’s domestic coal price cap.    

Mr. Dhruv Dhir, Senior research Analysist of Indian Coal Market, presented on “Changing Indian Coal Demand and its Impact on Indonesian Supply”. The Russian war has led to a significant change / increase in seaborn Russian coal exports to Europe and India. All coal producing countries are seeking to increase coal supplies to Europe. The Indian government is encouraging domestic growth, including increased steel & cement production that requires coal. Coal power plants are being encouraged to produce more power, through changing the cost passthrough mechanism that kept electricity prices low. Russian coal may replace some South African coal for steel production. There is some resistance to use high CV Russian coals for power, as the hardness impacts on grinders, and Russia’s high volatile coals have a different boiler burning profile, tough some blending is likely. India’s domestic coal supply is increasing (about 600 mill ton in 2021), along with coal power demand now to reach 1 billion ton in 2022. Indian coal stocks have improved. Indian coal prices are expected to cool off by 2025.

Mr. Ghee Peh, at the Institute for Energy Economics and Financial Analysis (IEEFA) presented on “Bangladesh and Pakistan Coal Market Outlook – what does it mean for Indonesian coal?” The global coal market is expected to remain tight with high coal prices for some time. Shipping Russian coal to India takes 24 days compared to 13 days from Indonesia, while Russian shipping to north Asia (Japan, South Korea) takes 4-7 days compared to Australian shipping of 19-22 days to north Asia. The bulk shipping market is tight. Coal power generation in Bangladesh increased by 68% from last YoY figures. Bangladesh has another 6.7 GW coal power under construction, with a new master plan coming next year.  Coal imports are planned to be reduced. Coal power in Pakistan accounted for 20% of national power supply. The 2030 master plan calls for 58% coal imported and 42% from domestic production, though utilization will favour hydro power & renewables. Coal demand is expected to remain relatively stable.

Discussion Points included;

  • The Indonesian government continues to appraise the DMO system, and a legislated system for companies to make some compensation payments into a state entity is yet to be implemented.
  • Global coal demand is now more even between northern hemispheres winter (heating) and summer (AC for cooling).
  • 5,800 GAR into China & India is expected to be relatively stable in the short term, but may soften by around 5%.
  • Coal is an immediate choice for power, as building more hydro power takes time.
  • Bangladesh coal importers are required to place 75% of payment on deposit, that reduces options of small players (brick making etc), with total market potential of 2-3 mill ton.  
  • Once the Russia – Ukraine war ends, the global coal trade pattern not likely to change quickly, as time required to lift sanctions, develop coal contracts, and some trade patterns will linger. EU may rethink its diversification of energy sources.
  • Most Indonesian coal producers are recording windfall cash profits, and are continuing to reinvest in coal.
  • The EU population is being called upon to consume less power – and this may offset CO2 produced by the extra burning for coal power generation.