China will be most affected if Indonesia’s coal export ban becomes indefinite

The government imposed the ban due to low stocks of coal at power plants.

Whilst Indonesia coal export ban is expected to be temporary, main importer China, is expected to be most affected if the ban becomes indefinite, according to Fitch Solutions.

Fitch Solutions said that China is seen to be negatively affected as Indonesia became a “key alternative supplier” of seaborne thermal coal to China due to trade relations issues between China and Australia in 2020.

“While we expect that China's government will continue to boost domestic availability of coal over the coming months, which should reduce import demand over the longer term, the country is likely to face a short-term coal crisis as it approaches peak winter heating demand,” it said.

It also noted that China has just alleviated the energy shortage in the third quarter of 2021 and a prolonged shortage of coal imports would put at risk the country’s energy security.

Indonesia’s export prices had increased along with China’s domestic coal prices, coupled with reduced disruption from the pandemic in 2022, “this would have otherwise encouraged increased coal production and exports from Indonesia in 2022.”

Other main importers Japan, South Korea, and India would also be negatively affected if the ban becomes indefinite.

The Indonesian government on 1 January banned experts of all types of coal for the month due to the critically low stocks of coal at power plants because of heavy in Kalimantan region which hampered production in December, according to Fitch Solutions.

It added the government urged coal producers to meet the domestic market obligation of dispatching at least 25% of their outputs to the domestic market before the imposition of the ban.

“It remains uncertain how long this coal export ban will last, with the government postponing talks with coal mining companies on reviewing the ban originally to be held on January 5 without a new proposed date,” Fitch said. “We expect the country to relax or moderate the coal export ban to some degree at least in the coming weeks, as local coal producers would be severely affected financially if the ban were to be indefinite.”

Local coal makers are looking at exporting their products to make profit as  the price domestically-sold coal in line with government-provided reference was lower than international market price, it said.

Fitch also cited data from the Indonesian Coal Mining Association which said that the ban will also affect shipping companies who could incur $20,000 to $40,000 demurrage costs and the government could face $3b foreign exchange losses monthly on top of royalty and other revenue losses. Coal production would also post a decline of 38 to 40 million tonnes monthly because of the ban.