Several Indonesian thermal coal producers are shifting their focus to the lucrative domestic space amid rising consumption, while seaborne trading appears to be losing steam at the traditionally strong export markets.
During a recently concluded industry gathering, Indonesia's Ministry of Energy and Mineral Resources officials said that while Indonesia is planning to lower coal production in the coming years, domestic consumption is expected to surge with more coal-fired capacities being added.
Indonesia is planning a total coal production of 413 million mt in 2017, down from about 419 million mt in 2016.
While exports are expected to fall to 292 million mt this year from 308 million mt in 2016, domestic consumption is expected to rise to 121 million mt from 111 million mt in 2016.
"The domestic market continues to grow at a rate of 8 million-10 million mt per annum," said the head of analysis at Noble Group, Rodrigo Echeverri, at the industry gathering.
Looking ahead, the Indonesian government aims to lower the total production to 400 million mt by 2019, of which 240 million mt is expected to go to the domestic market, the government officials noted.
Indonesia is planning to add 35 GW of power by 2019, with thermal-coal-fired power plants accounting for nearly 57% of it.
Coal is expected to account for more than half of Indonesia's total power generation-mix heading into 2026, with the majority of the country's production expected to be consumed domestically, according to industry observers.
"Bumi continues to assign priority to domestic sales and bid for long-term coal supplies in new coal-fired power capacities in Indonesia over the next two or three years," large Indonesian miner Bumi's director and corporate secretary Dileep Srivastava told S&P Global Platts.
Bumi has majority equity stakes in major Indonesian coal producers Kaltim Prima Coal and Arutmin. KPC and Arutmin produce steam coal with a heating value of 4,200-7,100 kcal/kg gross air dried, according to Bumi's website.
Kaltim Prima Coal has been awarded a contract to supply 4.5 million mt of higher-grade thermal coal annually to Tanjung Jati B project units 5 and 6 in Central Jawa, Indonesia, starting 2020, Srivastava said.
He said Bumi's domestic sales were 32.4 million mt in 2016, up from 30.9 million mt the previous year. He estimates domestic sales to rise 10%-15% year on year in 2017.
COAL MINERS DIVERSIFY
Several coal producers, including Adaro, Bumi, and Indo Tambangraya Megah, are also venturing into power generation.
Bumi's KPC is developing three coal-fired power plants, each 18 MW, while Adaro is also developing its power projects in Central Java and South Kalimantan province.
Meanwhile, the Indonesian government is also signing agreements with several coal producers to ensure supply to various mine-mouth power generation projects.
Late last month, Adaro Energy said in its quarterly report that Indonesia accounted for 30% of its total sales, while Malaysia stood second at 15%.
"Indonesian coal producers prioritized domestic market in the quarter resulting in tightness of Indonesian supply in the seaborne market," the company said.
Of the total sales, major seaborne cargo importers India and China accounted for only 5% and 2%, respectively, Adaro said.
While Indonesia's total coal production in 2016 was relatively flat year on year, its exports fell 2% and supply to the domestic market jumped 11% year on year, Adaro said.
Thermal coal suppliers are seeking alternate markets amid uncertainties surrounding demand for seaborne cargoes in traditional buyers like China and India.
China's production policy is keeping market participants on tenterhooks. Last year, China imposed production restrictions on its local mines, leading to supply tightness and a significant surge in coal prices. Later in the year, it relaxed its policy, easing supply and pulling prices lower.
Meanwhile, India is also shoring up its domestic production to cut its dependence on imports.
