China coal futures rise after Indonesia export ban

Chinese coal futures rose on Tuesday ahead of a review of an export ban announced last week by Indonesia, one of the world’s largest exporters of the fossil fuel, stoking fears of knock-on effects for the global economy.

The most active contract traded on the Zhengzhou Commodity Exchange rose as much as 8 per cent on Tuesday compared with its Friday closing price, with several other contracts also up more than 6 per cent at midday.

Indonesia’s state utility provider said on Monday that the country’s coal supply situation was facing a “critical period”. This followed an energy ministry announcement at the weekend that the government would seek to ban coal exports for the month of January.

The energy ministry said the ban would help to avoid outages at power plants run by the state utility PLN. The ban has fuelled fears of further increases in commodity prices after pandemic-led supply shortages around the world.

As well as being China’s largest foreign source of coal, Indonesia is also an important supplier to India and south-east Asia. The country provided a record of more than 21m tonnes of coal to China in September, up from 17m in August.

“The move could potentially have knock-on effects in China and India, which are the usual destinations for Indonesian coal,” said Warren Patterson, head of commodities strategy at ING.

Coal prices in China have been particularly volatile during the pandemic, with futures surging to as much as Rmb2,301 ($362) in October as the country’s economic recovery increased demand while lockdowns to combat the Delta coronavirus variant crimped supply. That compared with about Rmb700 for most contracts traded in Zhengzhou on Tuesday.

Coal prices in China later dropped after Beijing introduced measures including instructing domestic miners to increase production.

In a statement on Monday, PLN said it had received commitments for an additional 3.2m tonnes of coal for its plants in January with help from the government. But it said it needed a total of 5.1m additional tonnes to avoid widespread outages in the country.

It warned that ensuring supply was in the “national interest” and should be “prioritised” ahead of a review of the ban by ministers on Wednesday.

President Joko Widodo said supplying PLN was “a must” and called on coal producers to fulfil domestic needs before exporting.

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Analysts at Morgan Stanley said the potential loss of Indonesian coal exports, which account for about 40 per cent of the so-called seaborne market, could trigger a similar coal price rise to that of October.

At that time, the price of high-energy Australian coal, the benchmark for the Asian market, rose to a record of more than $270 a tonne. It is at present trading at about $150 a tonne.

“That said, the export ban could still be reassessed/fine-tuned, with a meeting between the government and miners scheduled for 5 January,” said the Morgan Stanley analysts.

Shares in Whitehaven Coal, one of Australia’s largest independent coal suppliers, rose 5.8 per cent to A$2.76 on Tuesday on news of Indonesia’s ban. London-listed Glencore, which also operates coal mines in Australia, gained as much as 3.3 per cent in morning trading.