Indonesia’s move to control coal prices faces Chinese pushback

THE Indonesian government’s plan to regulate the price of coal exports is facing pushback from its largest customer, as firms in China baulk at paying higher costs as other suppliers lower their rates.

Indonesian Energy Minister Bahlil Lahadalia this week issued a regulation forcing coal exporters from Mar 1 to use the official pricing standard, or Harga Batubara Acuan (HBA). The intention is to wrest control from independent pricing agencies that have lowered rates considerably compared to the Indonesian benchmark, Lahadalia said earlier this month.

For example, the February HBA for high-quality Indonesian coal was US$124.24 a tonne, compared to Australia’s Newcastle coal futures on the ICE Futures Europe exchange, where the February contract averaged US$105 a tonne this month and traded at US$102.40 on Thursday (Feb 27).

Indonesia is the world’s largest coal exporter and China, the top importer, is its biggest market. Buyers there have baulked at Indonesia’s move, as years of high domestic production and imports, combined with soft demand over the winter, have left many with overflowing stockpiles. At least one major coal buyer has halted spot imports of foreign fuel as it tries to bring inventories down.

If the new policy significantly raises prices, it could wipe out trade profits and discourage purchases from Chinese buyers, the China Coal Transportation and Distribution Association in a note earlier this week. Some Chinese firms may seek to cancel or renegotiate existing long-term contracts because of the shift, China-based consultancy Fenwei Energy Information Service said in a separate note on Thursday.

One problem is that coal prices change frequently, but the HBA updates just once a month. Indonesia is trying to reduce the lag by changing that schedule, updating on the 1st and 15th of every month going forward, according to the government regulation. BLOOMBERG

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