Commodity Insights

Indonesian Coal Ban

Indonesia's unexpected coal export ban throws markets into turmoil

Heavily dependent on Indonesian coal, China’s short-term energy supply is most at risk of Indonesia’s export ban amidst an ongoing dispute with Australia.

The Indonesian government has thrown seaborne thermal coal markets into turmoil with its temporary ban of coal exports. The announcement, made on 31st December by the Ministry of Energy and Mineral Resources (MEMR), bans coal exports for a month starting 1 January 2022, in order to ensure coal supply for domestic power producers including PLN and independent suppliers. The MEMR noted that if the export ban is not implemented, then almost 20 coal plants with a capacity of almost 11GW will be closed, which would be catastrophic for the domestic economy.  Coal suppliers, who were obligated to divert 25% of production into the local market in 2021 under the Domestic Market Obligation (DMO) policy, have been reluctant to supply domestically as the price received (capped at US$70/t) is less than half the price on seaborne markets. 

Understandably, seaborne prices have surged on the announcement which could remove up to 40Mt of supply from the market in January, if enacted completely (i.e. a full export ban for the entire month). Indonesia is clearly the world’s largest supplier of seaborne thermal coal, accounting for over 45% of global volumes.  Some producers have already declared force majeure on export cargoes in response to the announcement. Government officials are expected to meet with industry today (5th January) which may result in revisions to the ruling, particularly for those producers who have already met their DMO obligations. 

Commodity Insights’ Jakarta-based team estimates that January exports from Indonesia will be 5-7Mt lower than normal, which removes around 7% of global supply for the month. This will clearly support export prices, particularly if weather conditions in the northern hemisphere deteriorate. On a broader note, this does highlight the ongoing friction for Indonesian producers between exports and local production, which will only increase as domestic demand rises in the future.  In our view, this bodes well for seaborne thermal coal markets.  

Find out more about our Indonesian industry data and research capabilities