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Indonesia’s Coal Exporters Seek Six-Month Grace Period for Pricing Rule

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Indonesia's push for global thermal coal pricing policy faces reality check

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BigMint Bureau

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7 Feb 2025, 16:05 IST

Indonesia plans to use the HBA benchmark for coal exports

Policy may face challenges from foreign buyers and price volatility

Mysteel Global: In a bid to strengthen the country's bargaining power in global coal markets, the Indonesian government plans to require that export sales prices of thermal coal are based on the domestic benchmark price, known as HBA, Mysteel Global has learned. However, analysts suggest the proposal may face challenges if put into practice.

Addressing a press conference on 3 February, Bahlil Lahadalia, Indonesia's minister of energy and mineral resources, reaffirmed the government's intent to move forward with the HBA-based export pricing policy, saying that a ministerial decree to enforce the measure is being worked on. He reiterated that coal exporters could have their export permits suspended should they refuse to follow the policy.

The minister also mentioned the possibility of restricting coal exports to stabilise export prices, voicing frustration at the relatively low prices Indonesian coal currently commands. "If our prices continue to be suppressed, we might have to consider stricter export controls," he warned.

Indonesia exported 557.76 million tonnes of coal in 2024, up by 7.5% from 2023 and hitting a new record, as Mysteel Global reported. This means the country contributed 30-35% of global commercial coal supply, according to Lahadalia.

However, the Indonesian Coal Mining Association (APBI) has raised significant doubts about the viability of such a policy, especially considering the highly competitive nature of international coal markets, local media Bisnis reported.

Gita Mahyarani, acting executive director of APBI, emphasised that business-to-business transactions in the coal trade depend heavily on price competitiveness. "If the reference price is not competitive, it will directly affect sales" Gita said in an interview published on 5 February.

The HBA is determined by the previous two months' coal sales, and the challenge lies in the fact that it is published only monthly. In contrast, other widely-used indices like the Indonesia Coal Index (ICI), Newcastle Export Index (NEX), and the Globalcoal Newcastle Index (GCNC) are updated weekly. This time lag, Gita explained, could put Indonesian coal at a disadvantage in a fast-moving global market.

Industry players are still awaiting further details from Jakarta on how the policy would be implemented and its potential implications. "We really need more details. After all, coal contracts are business agreements. How will the government intervene?" Gita remarked.

Bisman Bhaktiar, executive director of Indonesia's Center for Energy and Mineral Law Studies (PUSHEP), observed that while the HBA can dictate prices within Indonesia, the government cannot compel foreign buyers to adhere to domestic pricing rules.

In other words, if global demand for Indonesian coal wanes or if international buyers find better prices for comparable coals elsewhere, the policy could backfire.

Bhaktiar suggests that while the HBA could be useful for setting a baseline price or as a negotiating tool, the actual terms of any coal deal will depend on global market conditions and the flexibility of both sellers and buyers. "In the end, the final price will be determined by the global market index and the agreement between the seller and the buyer," Bisnis quotes him as saying.

For the policy to succeed, the HBA must be carefully calibrated and reflect current market realities. The government, Bhaktiar stressed, needs to ensure that the HBA is both accurate and up-to-date, considering the volatility of the global coal market. "The most crucial factor is that the HBA should be reflective of the global market and should respect the principle of business-to-business agreements," he added.

The push for HBA-based global coal pricing comes against a background of last year's significant decline in global coal prices. According to Mysteel's assessment for Indonesian 3,800 kcal/kg NAR coal, prices averaged $56/t FOB Kalimantan throughout last year, down sharply from $64.8/t a year earlier.

China was the largest buyer of Indonesian coal last year. According to Statistics Indonesia (BPS), coal exports to China totalled 241.74 million tonnes in 2024, accounting for 43.3% of the country's total exports.

Amidst persistent oversupply, prices in China's domestic thermal coal market had spiralled down throughout 2024. Chinese coastal power utilities set their buying prices of imported coal through tenders by aligning with domestic prices, forcing global coal prices to move downward. As no other alternative buyers have such a huge buying appetite, Indonesian exporters have had to accept the price decline, Chinese sources told Mysteel Global.

Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.