Dec 14 2022
The demand for seaborne thermal coal will likely rise 3%-4% globally in 2023, but production may not match up to that scale as current unwillingness of banks to fund coal projects, coupled with the after-effects of the pandemic and the Russia-Ukraine war are still seen as major impediments, Indonesia's Bumi Resources said Dec. 14.
"The climate hysteria is increasingly restricting institutional funds and banks from investing in the coal sector, leading to a situation where coal demand would rise but supply would be limited, hence prices could remain elevated at close to 2022 levels," Dileep Srivastava, independent director and corporate secretary at Bumi Resources, told S&P Global Commodity Insights in an interview.
The supply-side concerns come after 2022 saw unfavorable weather in countries like Indonesia and Australia hurting output, while the change in traditional trade flows post the war stays on -- all of which took global thermal coal prices to record levels this year. Meanwhile, additional demand from Europe, which sanctioned Russian coal, could eat up supply in Asia as well, particularly for high-CV coal.
While global thermal coal prices have eased to some extent in the last couple of months as supply-side concerns waned, they remain at levels higher than the average of last two years.
The FOB Kalimantan 4,200 kcal/kg GAR rose to its highest levels for this year on March 10 to $136/mt, while CIF ARA 6,000 kcal/kg NAR physical coal reached an all-time high of $432.50/mt on June 23. Even though the prices have eased since then, the average of 2022 so far is still at $86.55/mt and $298.20/mt, respectively, for the grades. The price of Indonesian 5,900 kcal/kg GAR coal, meanwhile, averaged $181.20/mt FOB between Jan. 1 and Nov. 30, up 61.20% on the year, S&P Global data showed.
Stating that coal is the fallback feedstock till a cost-effective and an equally reliable replacement for it is found, Srivastava said that renewables are currently unreliable due to intermittency and storage concerns.
To fulfill its Paris Agreement commitment of reducing its national emission by 29% within 2030, Jakarta is expected to use 23% of its requirements from renewable energy sources by 2025 from the current level of around 12%.
"Going nuclear is not a universal option, gas prices are increasingly becoming unaffordable, geo-thermal is geographically restricted, hydro is not truly a bulk all weather solution and other feedstocks suffer from size," he said, adding that "Essentially, coal demand is expected to keep rising as far as can be seen, definitely till the end of this decade but supply would increasingly be far shorter leading to elevated prices, which is unfortunate."
Indonesian miners are not insulated from the vagaries of nature, Srivastava said, adding that it continues to face shortage of heavy mining equipment as machine manufacturers are wary of beefing up their inventory levels in the face of an anticipated recession.
Moreover, higher anticipated domestic demand on the back of revival in industrial activity, coupled with the government's additional coal requirement to protect itself from global supply volatility, could also be a challenge for supply fundamentals.
S&P Global reported earlier that Indonesia has requested thermal coal miners to supply 161.15 million mt to the country's power producers in 2023, a stark jump from the 127.1 million mt projected for 2022. Indonesia's domestic coal requirements are seen rising to 209.9 million mt in 2024 before dropping to 197.9 million mt in 2025, according to an official statement Aug. 11.
"The La Nina phenomenon of continuous rain since December 2021 led to a contraction in output volumes of 5%-10%, particularly of high-grade coals... The export ban imposed in January 2022 also affected exports. If rains subside in 2023, output can be far higher than 2022," Srivastava said. "High-CV coal price is likely to remain elevated in 2023 as it is in high demand, but its supply ex-Indonesia could remain quite restricted as it produces significantly far more of the lower ranked coals."
Bumi in its annual investor presentation Nov. 29 lowered 2022 production outlook to 70 million-76 million mt, from the 78 million-83 million mt range estimated earlier. The company's coal output in January-September was down 9% on the year to 53.7 million mt, mostly impacted by heavy rainfall.
Indonesia, the world's largest coal supplier, produced 614 million mt coal in 2021, of which 435 million mt was exported.