The Indonesian coal mining association (APBI) has asked the country's energy ministry (ESDM) to reduce mining companies' output because of weaker demand and prices, with the group forecasting that Covid-19 will cut demand for Indonesian coal by around 85mn t this year.
The ESDM originally set a production target of 550mn t for this year, of which 400mn t was earmarked for export and 150mn t for the domestic market. But domestic consumption has been weak and sales are now projected to reach only 100mn-110mn t this year, because of the economic impact of the pandemic. This would be down from 138.4mn t of domestic sales last year.
The ministry originally projected an increase in export sales to 435mn t to offset the loss of domestic demand. But the APBI said that increasing export sales could further weigh on international coal prices, especially given that demand from key coal importers such as China, India, Japan and South Korea remains weak.
Seaborne exports fell by nearly 10pc on the year in January-May to 175.1mn t, according to customs data, with the value of sales falling by a steeper 18pc to $7.77bn amid weaker international prices.
The ESDM has said that it is looking to expand sales to new markets such as Bangladesh and Pakistan, although it has noted that these markets might not be enough to offset the loss of sales to Indonesia's larger markets.
APBI's 85mn t forecast drop in total demand for Indonesian coal and 33.4mn t decline in domestic consumption implies a 51.6mn t reduction in seaborne exports compared with last year. This would put shipments to the seaborne market at around 405mn t, down from last year's record 456.4mn t.
This is broadly in line with the government's original 400mn t export target for 2020, but would drive huge oversupply of coal within Indonesia without additional production cuts. The government has targeted 550mn t of coal production this year, but APBI's figures imply total demand of only 510mn t.
Indonesian coal production totalled 228mn t or 41pc of the 2020 target in January-May, but APBI last month asked its members to cut output by 40mn-50mn t in June-December to prevent prices entering freefall.
The ESDM is accepting applications for changes to mining companies' work plans and budgets, which would allow coal producers to adjust their output targets. But the APBI has not ruled out the possibility that producers might also increase their output targets to maintain market share as other coal-mining countries have started to look to expand into Indonesia's export markets.
Exports to slow
Indonesia exported 175.2mn t of all types of coal in January-May — an average of 35mn t/month — according to the government, with shipments in May sliding to less than 30mn t for the first time since June 2017 (see chart).
A 405mn t export total for 2020 would require exports to average 32.8mn t/month in June-December, compared with 37.6mn t/month over the same period last year. But weaker Indian and Chinese demand amid efforts by both countries to support their domestic coal sectors continues to pose a downside risk.
China and India have accounted for a respective 33pc and 18pc of Indonesian coal exports since January 2019, suggesting that the two would together need to absorb around 16.7mn t/month of Indonesian coal for the rest of this year for Indonesia to export 405mn t. The two countries together imported more than 26mn t/month in January-February, but receipts fell to less than 22mn t/month in March-April and then to less than 16mn t in May, customs and shipping data show.
Indonesia's total coal exports last year increased by 6.4pc on the year to 456.36mn t, according to data from government statistics agency BPS. Thermal coal accounted for 428.83mn t of thism up by 35.2mn t from 2018.