Affected by the news of Indonesian restrictions on coal export during the new year’s Day holiday, on January 4, the first trading day of 2022 in the Chinese market, the coal market ushered in a sharp rise, and stocks and futures rose collectively.
Analysts said that as the world’s largest exporter of thermal coal and China’s largest importer of coal / thermal coal, Indonesia’s measures to restrict coal export or tighten the supply of the global coal market may have an impact on the price of coal assets in the short term. However, according to the actual situation of China’s supply and demand, it is expected that the coal price will not rise sharply.
coal assets rose sharply
On December 31, 2021, an Indonesian government document circulated in the market showed that Indonesia would prohibit the export of coal from January 1 to January 31, 2022 due to concerns about the shortage of power supply in China. Even the coal ships being loaded and unfinished will be transported to the Indonesian power plant.
As the world’s largest exporter of thermal coal, Indonesia’s move will undoubtedly tighten the global coal supply market. On January 4, China’s coal assets rose sharply.
In terms of stocks, China Securities Journal and China Securities Taurus data show that as of the noon closing on January 4, the coal mining and processing sector rose by more than 3%. Among them, Gansu Jingyuan Coal Industry And Electricity Power Co.Ltd(000552) rose by the limit, Anyuan Coal Industry Group Co.Ltd(600397) , Zhengzhou Coal Industry & Electric Power Co.Ltd(600121) rose by more than 6%, and Shanxi Lanhua Sci-Tech Venture Co.Ltd(600123) , China Coal Xinji Energy Co.Ltd(601918) , Guizhou Panjiang Refined Coal Co.Ltd(600395) , Shanxi Coking Coal Energy Group Co.Ltd(000983) rose by more than 5%.
In terms of futures, Wenhua financial data showed that as of the noon closing on January 4, the main contracts of thermal coal futures rose by more than 6%, and the main contracts of coking coal and coke futures rose by more than 4%. Source: Wenhua Finance
It is noteworthy that Indonesia is China’s largest source of coal / thermal coal imports. From January to November 2021, China imported 177 million tons of Indonesian thermal coal, a year-on-year increase of 54.4%, accounting for 74.4% of the total imported thermal coal.
how does the Indonesian export ban affect
It is understood that Indonesia’s restrictions on coal exports are not the first time. As early as August 2021, 34 Indonesian coal mining companies were suspended by Indonesian authorities for failing to fulfill the “China market obligation (DMO)” policy from January to July. The policy requires that coal mining enterprises must supply 25% of the annual output to the national utility company perusahaan Listrik Negara (PLN) to meet China’s demand, and the price limit of 6322 kcal thermal coal is US $70 / ton. The price is much lower than the current market price.
Relevant Indian officials said that at present, the coal inventory of PLN and independent power enterprises is at a very low level, which poses a threat to the country’s power supply. When the coal supply of Indonesian and Chinese power plants is fully met, the coal export will return to normal.
Zeng Xiang, senior analyst of Yide futures power coal, told reporters: “This document was very hasty, and no relevant communication was made with the mine owner when it was released, which led to the mine owner’s subsequent protest and consultation with the government. Then, the government decided to supply all non offshore coal to China’s power plant before January 5, and make policy adjustment according to the inventory of the power plant on January 5. Meanwhile, DMO has been completed according to the further detailed plan published later 123 coal mines (China’s coal supply obligation) are expected to liberalize exports, which account for more than half of Indonesia’s output. Therefore, in the worst case, more than half of the production capacity will be exported in the later stage. ”
“The ban is short-term and difficult to last for a long time.” Analysis by Zhou Tai and Li Hang, coal industry analysts of Minsheng securities. According to the data of the Ministry of energy and mineral resources of Indonesia, as of December 10, 2021, the total coal output of Indonesia was 560 million tons, which is expected to reach 609 million tons in 2021, 637 million tons to 664 million tons in 2022, and the consumption is expected to be 190 million tons, accounting for about 30% of the total output. Based on its low coal consumption in China, the export ban is expected to be short-term and difficult to last for a long time.
has limited impact on China’s coal price
Ahmad zuhdi DWI kusuma, an industry analyst at bank Mandiri in Indonesia, predicts that the Indonesian export ban will push up global coal prices in the coming weeks as coal inventories decline. Meanwhile, Indonesian coal customers may turn to Russia, Australia, Mongolia and other countries.
Zhou Tai and Li Hang said that the recent rapid decline in coal prices was mainly affected by the reduction of purchased coal prices of large groups. Under the Indonesian export ban, market sentiment will be repaired. It is suggested to pay attention to the subject matter of relevant coal stocks.
“From the perspective of import volume, 15-20 million tons of foreign trade coal has little impact on the current market.” Wang Xiaonan, senior analyst of Baocheng futures power coal, told reporters that from the perspective of upstream production, the national daily output is about 12 million tons, much higher than the level in the same period in previous years. China’s supply increment can basically cover the reduction at the import end; From the downstream market, as of December 31, 2021, the national unified dispatching power plant was 166 million tons, and the import volume of Indonesia accounted for only about 9% – 12% of the national unified dispatching power plant inventory. In terms of the inventory of national key power plants, as of December 23, 2021, the inventory of national key power plants was 109.49 million tons, an increase of more than 40 million tons compared with the end of December 2020. Under the influence of high inventory of terminal power plants, the decrease of import volume in Indonesia can be basically digested. From the perspective of demand, in mid and late January, all industries will start to stop production and have holidays, and the overall power demand will weaken due to Festival factors. In the later stage, with the warmer temperature in the south, the power demand will turn light in the peak season. The superimposed demand of high inventory weakens, and the actual impact of the decline in foreign trade coal replenishment may be weaker than expected.
“Indonesia’s move will inevitably lead to a certain shift of import demand to China in the short term and increase China’s coal demand. At the same time, China’s coal price is accelerating its decline before New Year’s day. Affected by the sentiment of the Indonesian incident, the suppressed demand is expected to be gradually released.” Zeng Xiang said that, however, January was about to enter the node of the Spring Festival holiday. Coupled with the already high inventory, the import price is not dominant, and the overall import will also be reduced. Therefore, the substantial impact of Indonesia’s ban on coal export may be relatively limited and will not lead to a sharp rise in China’s coal prices.
(China Securities Journal)
