Indonesia considers coal levy as easing of export ban calms markets

  • Chinese thermal coal futures fell on 11 Jan 22 after Indonesia, the world’s biggest thermal coal exporter, eased a ban on overseas shipments that surprised buyers at the start of 2022, alleviating concerns about supply disruptions.
  • Late on 10 Jan 22, Indonesia agreed for 14 coal vessels to depart as soon as they got permits from authorities. To ensure PLN does not run low on coal again, the government is discussing new procurement policies, including a levy system for miners.
  • The ban, which came into force on 1 Jan 22, triggered a rally in Australian and Chinese coal prices last week. However, Chinese thermal coal futures fell more than 3% to CNY685 (USD107.50) on 11 Jan 22 in reaction to the relaxation.
  • “There is still demand for Indonesian coal from Chinese power plants,” said one China-based trader, adding that some may turn to Russian coal as an alternative.
  • There are currently around 120 vessels either loading or waiting to load off Indonesian’s coal ports in Kalimantan on the island of Borneo, according to Refinitiv data.
  • The Indonesian government will conduct a review on 12 Jan 22 and if it fully scraps the ban, it will do so gradually as it considers how the resumption affects compliance with so-called Domestic Market Obligation (DMO) rules, Coordinating Minister of Maritime and Investment Affairs Luhut Pandjaitan said.
  • Luhut said the government is mulling a formula that would make miners pay a levy to a government agency, which will use the revenue to help PLN pay for its coal needs at market prices.
  • Under one possible scenario, miners would pay a levy based on output that would be evaluated periodically depending on the gap between market prices and the USD70 threshold, according to an official document reviewed by Reuters.
  • The document puts the potential levy at USD3.87 a tonne, which could provide an estimated US$2.5 billion to help PLN procure coal over a year. The government also planned to dissolve PLN’s coal procurement unit, PLN Batubara, so PLN can deal directly with miners and not go through traders, Luhut said.

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