Indonesia coal exports suffer most as Chinese demand falls

[LONDON] Indonesia was the hardest hit of China's coal suppliers in the first half of the year amid plummeting demand in the world's biggest energy consumer.

China's tighter quality limits on seaborne coal and increased support for domestic miners cut imports 38 per cent from a year earlier in the six months through June, the most for the period in at least five years, according to China customs data published Tuesday. Shipments from Indonesian miners fell 49 per cent, the most of China's five largest suppliers.

Reduced imports by China amid a shift to a more consumer- driven economy left exporters searching for alternative markets as supplies expanded following an investment boom from 2008 through 2011. Indonesian companies including PT Tambang Batubara Bukit Asam Tbk and PT Adaro Energy Tbk will have to find new homes for their coal as Deutsche Bank AG sees supply exceeding demand in the sea-borne market from this year, with the glut widening to 5.2 per cent by 2018.

"Indonesian exporters were the ones who benefited the most when Chinese imports were booming two to three years ago," Guillaume Perret, founder and director of Perret Associates, a coal research company in London, said by phone July 17. "As Chinese demand is falling, to some extent it makes sense that Indonesia suppliers are the first to suffer."

Cameron Tough, a Jakarta-based spokesman for Adaro Energy, didn't reply to an e-mail seeking comment on Chinese demand. Bukit Asam's "sales are on track," Joko Pramono, corporate secretary, said on Thursday.

While China has pledged that its greenhouse gases will peak in 2030, almost half of all coal stations under construction are in the nation, according to the Sierra Club, a US-based environmental group.

China imposed import restrictions and increased support for local miners from Jan 1 in an effort to boost its domestic industry, banning hard coal imports with more than 3 per cent sulfur and more than 40 per cent ash, as well as lignite with more than 1.5 per cent sulfur and 30 per cent ash. It also placed curbs on mercury and arsenic.

"We hope there will be an increase in domestic demand," Supriatna Suhala, executive director of the Indonesia Coal Mining Association, said Thursday by telephone.

"In five years, we hope President Widodo will be able to pull off a program to add 35,000 megawatts. Construction of domestic power plants can help absorb production capacity."

North Korea, which produces a high-quality grade known as anthracite, was the only of China's five biggest suppliers to increase deliveries in the six-month period, offsetting Vietnamese imports.

Indonesia reduced its coal price benchmark by 2.4 per cent to a record US$59.59 a ton last month. The nation produces a variety of grades of sub-bituminous coal, which generally have lower heating content than bituminous material from other regional suppliers, Perret said.

"China's domestic coal prices have plunged since last year and are still on a downward curve," David Fang, a director with China Coal Transport and Distribution Association, said Wednesday by phone from Beijing. "Indonesia's coal with low heating value and quality is the least favored in China's anti- pollution drive."

Producers of higher-quality coal such as Australia or South Africa will find it easier than Indonesia to market their fuel, Mr Perret said. "They have more room for maneuver in terms of finding new alternatives if their typical client doesn't want their coal."

Chinese imports of hard coal fell to 76 million metric tons in the first half, the customs data show. Indonesia's sales dropped to 14 million tons while shipments from Australia declined 25 per cent to 34 million tons.

BLOOMBERG