“Coal Prices Plummet as China and India Unite to Suppress Imports: Weekly Market Review”

Weekly Review

Jakarta, CNBC Indonesia – Coal prices are getting languishing. In the last trade this week, Friday (5/5/2023), the coal price for the June contract on the ICE Newcastle market closed at US$ 168.5 per ton. The price is down 0.88%.

This price is the lowest since January 11, 2022 (US$ 168.1 per ton) or in the last 16 months or almost 1.5 years.

Yesterday’s weakening also extended the negative trend of coal which also collapsed the previous two days. In the last three days, coal prices have fallen 11.31%.

Within a week, the price of coal fell 8.99%. This weakening was greater than in the previous week where coal prices fell 2.22%.

The fall in coal prices this week signals the end of Indonesia’s durian fall party. Since early 2023, coal prices have fallen 56.8%.

This week’s coal prices signal the end of the windfall for Indonesia. Coal is one of the biggest cash miners for exports and tax revenues for the country.

Coal exports contribute around 19% of Indonesia’s total exports. Black sand also contributes to revenues from many fronts ranging from corporate tax revenues to royalties.

The price of coal was actually successful again in the past two weeks. The heat wave that hit the Asian region made the price of coal jump to the level of US4 200 on April 8-12, 2023.

However, coal prices then slumped. A number of factors contributed to this, starting from India’s policies, China’s economic development, to developments in the United States (US).

China’s and India’s coal production is expected to increase this year so that import demand can be suppressed. India’s coal production exceeded 893.08 million tonnes in the April 2022/March 2023 fiscal year.

Production jumped 23% in the last five years.

India also announced a new ambition of coal production of up to 1.012 billion tonnes for the 2023/2024 fiscal year.

Shocking news was also delivered Bollywood country. The new draft of the National Electricity Policy (NEP) indicates the Indian government plans to no longer build new coal power plants, beyond those already included in the previous proposal.

This step was taken to encourage the development of green energy that is more environmentally friendly. India currently still depends on around 60% of its electricity production from coal plants.

With efforts to increase production while on the other hand stopping the construction of power plants, coal supply from India is estimated to be abundant.
This condition will reduce pressure on the global market so that coal prices are depressed.

China’s coal production has also increased dramatically to a record in March with a total of 417.22 million tons. This amount is equivalent to 13.46 million tons per day which is the highest on record.

China’s coal production exceeded 1.15 billion in January-March 2023, or an increase of 5.5% compared to the same period last year.

The increase in China’s production actually occurred in the midst of weak manufacturing. China’s Purchasing Manager Index (PMI) contracted to 49.2 from April.

The index is much smaller than 51.9 at March 2023. Weakening manufacturing could make coal demand slump.

The price of coal also fell following the price of other energy sources such as crude oil and gas.

Prices for energy sources ranging from crude oil to gas plummeted after the US central bank The Federal Reserve (The Fed) raised its benchmark interest rate by 25 bps to 5.0-5.25% on Wednesday US time or early Thursday Indonesian time (4/ 5/2023).

The increase in interest rates occurred amid the US banking crisis and fears of a recession. It is feared that the US economy will continue to slow down, which in turn will have an impact on the global economy.

If the global economy slows down, the demand for energy sources will decrease.

Brent crude prices fell 5.3% on the day while WTI fell 7.2%. TTF European gas prices also fell 5% today.

CNBC INDONESIA RESEARCH

research@cnbcidonesia.com

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