Russia sanctions provide price support for Indonesia coal plays: Maybank

COAL prices are likely to remain high in the near term, as supply is squeezed by sanctions imposed on Russian coal in response to the nation’s invasion of Ukraine, Maybank said in a Monday (Jul 4) report.

With a tight supply and shortage of alternative producers, many importers of coal will set their sights on Indonesian coal, the report said. It re-initiated coverage of Indonesia’s coal mining sector with a neutral view, however, on the expectations of long-term moderation in coal prices.

Maybank analyst Richard Suherman noted that Russia is a major supplier of coal, producing the equivalent of 4.2 per cent of the world’s coal and exporting 16 per cent of the world’s total coal imports in 2021.

The European Union, which gets more than 40 per cent of its coal imports from Russia, announced plans to fully ban the import of Russian coal and other solid fuels by mid-August this year; the United Kingdom plans to do this by the end of the year.

The world’s third and fourth largest coal importers, Japan and Korea, have also moved to reduce reliance on Russian coal, with more countries expected to follow suit.

Given the current tight supply of energy in the market, replacing the coal supply chain may prove more difficult than anticipated, Suherman added.

A NEWSLETTER FOR YOU

Friday, 8.30 am

Asean Business

Business insights centering on South-east Asia's fast-growing economies.

Sign Up

Together with the difficulty in sourcing coal from alternative producers, global prices look likely to remain high in the near term, serving as a boon to Indonesian coal companies, who Maybank says have confirmed that inquiries from Europe have increased in recent months.

However, Maybank cautioned that the high coal prices are unsustainable, in view of the expected economic slowdown and rising supply from China and India.

Demand from China, which accounts for 52 per cent of global coal consumption, is expected to normalise. Coal demand is also expected to ease as surging commodity prices and inflation push central banks to tighten monetary policy, dampening economic growth.

“The World Bank now expects the global economy to experience its sharpest deceleration following an initial recovery from global recession in 2020,” Suherman said. 

He added that China and India, the top two coal consumers in the world, will also be ramping up their own production of coal, prompted by power crunches in the beginning of the year. In the long term, this will flood the market with supply, moderating coal prices in coming years.

Stricter climate change action and increased expansion of and transition to renewable energy, encouraged by high energy prices, will prompt a steady fall in coal prices, Suherman said.

“We believe coal prices will start to come down in 2H22 before gradually easing towards our long-term price assumption of US$80/t (S$111.66/t).”