Limited impact likely seen from Indonesia's ban on coal exports

Sectors still on healthy track as nation's previous stabilizing efforts pay off

Indonesia's decision to ban coal exports in January may have a limited impact on its biggest customer, China, as the country took effective measures to boost domestic coal output and production since a power crunch last year, analysts said.

Their comments came as Indonesia－the world's biggest exporter of thermal coal－banned exports in January to ensure supplies for domestic power plants.

The most active thermal coal futures contract on the Zhengzhou Commodity Exchange surged 6.38 percent on Tuesday over concerns of supply disruptions by the Indonesia coal ban.

"Indonesia is China's largest source of coal imports, accounting for 62 percent of the total, and appropriate adjustments can be done to mitigate market disruptions caused by the sharp coal import decline," said Zhang Hong, deputy secretary-general and spokesman of the China National Coal Association.

Dong Xiaoyu, a researcher with the China Energy Research Society, said the decline in coal imports will not exert much impact on China's coal supply and strategic storage because the nation has been seeing increases in coal output, a rebalancing of supply and demand, and a stable downturn in coal prices since the second half.

"In the long run, Indonesia will remain the major coal supplier to China, and it is mutually beneficial for both countries to keep their coal trade on a sustainable and stable track," Dong said.

The expert believes that with the Regional Comprehensive Economic Partnership agreement－a free-trade pact that has entered into force in 10 Asia-Pacific countries－China will need more coal imports from Indonesia, and further intervention in the coal market is not a rational choice for the major exporter.

Bai Wenxi, chief economist at IPG China, said the Indonesian coal export ban will have a "certain impact on global coal supply".

"However, its impact on coal used for industrial sectors and people's livelihoods will probably be negligible in China, as coal imports from Indonesia only occupy a small part of China's overall coal consumption, and China also has huge potential in boosting domestic coal production."

As Indonesia has banned coal exports for just a month, Bai said prices of coal products, futures and stocks will not be much affected and the impact on the industrial chain and other related sectors should be limited.

Although the supply and demand outlook will not continue to be tight in the future, the government and related enterprises need to work on emergency reserves, prepare emergency plans and ensure sufficient inventories to mitigate risks over imported coal supplies, he added.

Bai's views were echoed by Zhou Maohua, an analyst at China Everbright Bank, who said the ban will not affect China's stable coal supplies.

"During the January-November period, China imported around 177 million metric tons of coal from Indonesia with an average monthly import of 16.09 million tons, accounting for less than 5 percent of China's coal consumption," said Zhou. "This time, Indonesia is temporarily banning coal exports. Meanwhile, the previous government measures to ease rising coal prices and boost domestic output will also help ensure stable coal supply."

The government should take more measures to ensure energy supplies in the short term, said Zhou, who believes it is necessary to balance energy security and green transformation of the economy for the long run, and called for more efforts in technological innovation and improving the clean and efficient use of coal.

Zhou said the ban may disrupt coal prices in the global market, which will affect prices of oil and other energy sources, and the profitability of some manufacturing and industrial sectors.

In fact, this is not the first time that Indonesia took such action. In August, Indonesia suspended coal exports from 34 coal mining companies which it said failed to meet domestic market obligations between January and July last year.

Considering the rising coal prices after the previous ban in August, Tao Jin, deputy director of the Macroeconomic Research Center at Suning Institute of Finance, expects to see a surge in the prices of coal and related products in the near future. Tao said enterprises need to pay more attention to changes in the market and it is necessary to appropriately increase coal inventory.