Global coal prices will remain under pressure until the end of the year amid a persisting glut in supply and weak demand from China and India, analysts said.
“The market is currently oversupplied. Production, in particular in Indonesia and Australia, remains strong, but the demand is declining,” Hendra Sinadia, head of the Indonesian Coal Producers Association, told a Indonesian coal-industry webinar.
“This could make the coal price to continue its downtrend until the end of the year,” he said.
Already, the Global Coal Newcastle index – a benchmark for Asia-Pacific coal trade – is down more than 20% from the start of the year, at USD 50.25/t.
And Indonesia’s coal reference price was pegged at USD 52.98/t in June, 20% lower than the January price.
While some Indonesian coal producers may cut output over the coming months, others could be unwilling to reduce production for fear of losing market share, Sinadia said.
Ghee Peh, a coal analyst with the Institute of Energy Economics and Financial Analysis (IEEFA), told the webinar demand from China and India – the two largest thermal coal importers – is projected to remain low until the end of this year, thereby keeping pressure on prices.
“The export market is going to be very difficult [for Indonesian coal producers] this year because India’s economy has been locked down and is only just restarting now,” he said, referring to government measures introduced to stem the spread of the Covid-19 pandemic.
China and India accounted for more than half of Indonesia’s coal exports last year.
Ghee Peh said China would remain Indonesia’s biggest export market, but that importers would only be willing to buy at reduced prices.
“China will buy more [Indonesian coal] than India. But the Chinese always want to buy at a very low price. That is a big problem,” he said.
He noted the Indonesian coal sector faced the possibility of a prolonged period of lower coal prices.
“It is already July and the price is USD 52-53/t. That’s going to be a big problem for Indonesian coal producers,” he said.
Yet he noted the “good news” was that even at such low prices, around half of Indonesia’s major producers were still making money.