Indonesian October Coal Reference Price Reached The Highest In The Year
The Indonesian thermal coal reference price (or HBA) for October increased to USD330.97 per tonne, from USD319.22 in September, driven among others by rising global demand as some European countries have reactivated their coal plants amid soaring gas prices. The Ministry of Energy and Mineral Resources said in a statement that the October HBA is the highest so far this year, influenced by the increase in the average of the monthly indexes that form the HBA (Indonesia Coal Index rose by 3.63%, Platts by 4.41%, GNCC by 3.98%, and Newcastle Export Index by 3.08%. In addition to the increase in the average of the indexes, European countries such as Germany, the Netherlands and Belgium have revived their coal plants as a result of Russia’s gas supply cuts.
Global coal demand is set to return to its all-time high this year based on an International Energy Agency report. The IEA sees coal consumption in Europe rising by 7 percent in 2022 on top of last year’s 14 percent surge. Demand for coal in India, the world’s second-biggest coal importer, is expected to rise almost 10 percent in 2022 as the country’s economy expands and electricity use increases. The global coal demand is being propped up this year by rising natural gas prices, which have intensified gas-to-coal switching in many countries. The European Union, which gets about 40 percent of its coal supplies from Russia, is reported to have fully banned coal imports from Russia starting last month due to the latter’s invasion of Ukraine while the United Kingdom will follow suit by end-2022. Japan and South Korea have also announced they will take a similar step. The mass cancellation of Russian coal imports has caused supply shocks and put the world into an energy crisis. Spain, Italy and the Netherlands have joined Germany in exploring options to purchase a large amount of coal from Indonesia. India, which is Indonesia’s second-largest coal export destination, has also approached the country to acquire more coal to meet its domestic needs.
Meanwhile, Indonesia’s coal mining industry has proposed to the government to extend the duration of the work plan and budget (or also known as RKAB) to five years from the current one-year term. The Ministry of Energy and Mineral Resources has yet to specifically discuss the coal miners’ proposal. Under the existing regulation, Indonesian coal miners are required to seek their annual RKABs approval from the ministry, which contains their respective annual coal production plan. The chairman of the Indonesian Mining and Energy Forum (IMEF), Singgih Widagdo, said that the extension of the RKAB duration was urgently needed to map out the allocation of capital expenditure and assets following the potential decrease in coal imports by China and India from 2026. China will burn a maximum of 4.3 billion tonnes of coal in 2025-2026, India 1.3 billion tonnes. The adjustment of the RKAB could minimize the negative impact of the potential decline in coal demand in the international market in the next few years, by allowing coal miners to better map out their production and investment plans.
