Singapore — Indonesian thermal coal suppliers and shipping companies are growing increasingly concerned as the May 1 implementation of a requirement to use local ships for exports draws closer, as the government has yet to define what it means by Indonesian-controlled ship, market sources said Thursday.
Just 8.8% or 63 of the 717 coal ships plying the region are Indonesian flagged, according to Platts trade-flow software cFlow.
The country's Ministry of Trade announced the requirement to use Indonesian insurance and ships for exports in 2017 and subsequently delayed the implementation to May 1, 2020, to enable details of the plan to be ironed out.
"The obligation was initially supposed to be enforced in 2017; it was postponed due to the very limited capacity of national vessels to transport coal, which is commonly sold on an FOB basis," the Indonesian Coal Mining Association said in a statement in late February.
The association said its members were concerned that coal exports could be disrupted given the increasingly limited time and lack of technical guidelines provided to facilitate the implementation. ICMA said its members were worried that overseas buyers may turn to suppliers in other regions instead amid a global oversupply of coal.
A source close to the matter said the Ministry of Trade had met with Indonesian coal miners last Thursday to explain the May 1 changes "without providing definitions for Indonesian-controlled ships.'
Without a clear definition of what classifies a ship as Indonesian controlled, market sources expected the most practical solution for ship owners would be to register their ships under Indonesian companies.
The ICMA said it was continuing to appeal for a deferment of the May 1 implementation.
Shipping rules without clear technical guidelines were also not beneficial to shipping companies, the Indonesian National Shipowners' Association said at a meeting Tuesday with the ICMA and the ministry, another source close to the matter said.
"In shipping operations, anything in the grey zone would hurt shipping companies in terms of liability of shipping charges," he added.
The miner and shipowners' associations were meeting weekly with Indonesian authorities in the lead-up to the May 1 implementation, the source said.
"There is so much gap to bridge in implementation in terms of parties' standpoints and it could be a zero-sum game for the Indonesian shipping industry and Indonesian coal mining industry," he added.
PRICE HIKE FEAR
Market sources were concerned about the potential for a price hike for Indonesian ships, as well as potential for the attractiveness of Indonesian coal to be impacted by the implementation.
"Some coal buyers from Japan and Malaysia have cancelled shipments from May onwards due to the lack of clarity," one source said.
The source added that there will be an oversupply of coal without a home domestically in Indonesia, which could hit the country's local industries.
"Demand for Indonesian ships will surge and Indonesian coal will no longer be attractive to China," a Beijing-based trader said.
"Personally, I do not think it is practical as there are hundreds of ships, from Capesize to Supramax, shipping coal out of Indonesia monthly due to limited Indonesian flag ships," a ship-chartering source with a trading house based in China said, adding it would be impossible for enough international trading ships to transfer to Indonesia flags to meet the requirement.