An imbalance between Indonesian coal output and sales during January-July has raised the prospect of a supply glut, which could put even more pressure on coal prices that are already hovering near all-time lows.
Indonesia produced 324.4mn t of coal at an average rate of 46.3mn t/month during January-July, according to energy ministry figures. This was slightly ahead of the necessary 45.8mn t/month pace needed to achieve the government's 550mn t annual target, which was set before the Covid-19 pandemic hit.
But Indonesian sales have fallen well short of targets so far this year, implying a build-up of stocks and boosting the potential for significant oversupply through the remainder of the year.
Indonesian coal sales reached 286.1mn t in January-July or 40.9mn t/month, according to the government's figures, which is nearly 5mn t/month short of the volumes needed for demand and supply to balance in the 2020 calendar year.
Indonesian coal production was down on the year by around 4.2mn t/month in January-July, but sales were down on 2019 by 11.6mn t/month over the same period, which also paints an increasingly weak picture of the overall supply-demand balance in the region so far this year.
Indonesian production has shown signs of weakness in recent months and some big producers have revised down their annual guidance, but other miners are more bullish and the government has so far maintained its annual target, which could sustain output at close to the January-July rate for the rest of the year.
The country's largest producer Bumi Resources in June lowered its 2020 output guidance to 85mn-90mn t from a previous target of 94.5mn t. Indonesia's second-largest producer Adaro Energy plans to reduce output by around 10pc this year to the lower end of its previous guidance of 54mn-58mn t. But other mining companies are keeping their output targets flat, fuelling expectations of oversupply at a time when demand is weak and prices are low.
Production would need to average 45.1mn t/month in August-December to reach the 550mn t target, compared with 46.3mn t/month in January-July. This would be down by an average of 7.3mn t/month compared with August-December 2019, although a more robust performance in the export sector would still likely be needed in order to tackle the supply glut that has built up.
Of the 286.1mn t sales in January-July, around 237.6mn t was exported, according to Argus estimates based on customs and shipping data, implying domestic sales of around 48.5mn t. The government's figures are reported with a lag and the data is subject to frequent upward revision.
Domestic demand is expected to fall by 28mn-38mn t on the year to 100mn-110mn t in 2020, which would leave an exportable surplus of 440mn-450mn t. But to achieve the lower end of this band, Indonesian exports would need to average 40.5mn t/month in August-December, which would be 6.5mn t/month higher than in January-July and 2.4mn t/month higher than in August-December 2019.
This is likely to be a particularly challenging task and will require a significant push into Indonesia's smaller export markets, amid uncertainty about demand from the country's main buyers India and China.
Indonesia's sales to India fell on the year by 3.4mn t/month in January-June according to customs data, to a 7.1mn t/month average, with exports to China up by only 213,000 t/month at 12.4mn t/month. The two markets accounted for 22.1mn t/month of Indonesia's August-December 2019 exports and, unless producers are able to improve on that return in 2020, at least 18.4mn t/month will need to find a home in markets outside of India and China in August-December, compared with 16mn t/month in the same months last year.
But the Indonesian coal mining association is considerably more pessimistic in its outlook for demand this year, forecasting an 85mn t year-on-year drop in overall Indonesian coal sales. This would imply annual exports of closer to 405mn t, or 33.5mn t/month over August-December, which would likely compound current oversupply and maintain pressure on prices.
Fob prices for Indonesian GAR 4,200 kcal/kg coal, which accounts for the bulk of Indonesian exports, were last assessed by Argus at $23.74/t on 14 August, with the price having fallen by more than 35pc from a 2020 peak of $36.54/t in February.
