Indonesia suspends coal exports due to energy crisis, which could drive up prices in the global market
Indonesia has halted steam coal exports effective January 1, 2022 to divert supplies to domestic utilities, which are struggling with severe fuel shortages, and to avoid widespread power outages that could disrupt economic activity in the country.
The unprecedented move by the world's largest thermal coal exporter has heightened uncertainty in the maritime market as the move will block supplies to key consumers like China ahead of the peak winter demand season, even with deals already in place to ensure on-time shipments. The move could trigger another round of price volatility after spot prices more than halve after hitting multi-year highs in late October 2021.
The decision to ban exports follows a call from the authorities in recent weeks for coal producers to fulfill their obligations in the domestic market, according to which suppliers must send at least 25% of their production to the domestic market. The export ban was imposed as a number of utilities reportedly have coal reserves for just four days after heavy rain in parts of Indonesia's main mining region, Kalimantan, further restricted production.
Supply of coal for utilities is currently critical and very low and could affect the national electricity system, Indonesia's Energy Ministry (ESDM) said late on December 31. It states that thermal coal that is already loaded onto ships or lying at loading ports must be sent to utilities.
The coal industry has called this decision impractical as it could disrupt monthly coal production by 38-40 million tons and affect producers' cash flow, the Indonesian Coal Mining Association (APBI) said.
A number of Indonesian coal suppliers have already announced force majeure with reference to the ban. The decision will also affect shippers as they can incur between $ 20,000 and $ 40,000 a day in downtime costs, while the government could face foreign exchange losses of around $ 3 billion a month in addition to royalties. and other income, APBI reports.
APBI urges Jakarta to find ways to tackle major problems in the domestic coal market after deciding to stop exports for this month. According to him, the export ban is only a temporary solution and does not solve the structural problems that led to the supply shortage.