Coal futures threaten US$200/t as Indonesia ban extends into second week

ASX-listed coal miners continued to prosper yesterday as a resolution fails to materialise for Indonesia’s export ban, which has sidelined 40 per cent of the seaborne market for the energy fuel.

A meeting had been set out for last Wednesday for coal miners and the Government to discuss the ban but was subsequently abandoned.

It would see an estimated 40Mt of seaborne thermal coal removed from the Asia-Pacific market each month if allowed to persist, though analysts say the amount required to supply the local power sector is less than a quarter of the country’s production profile.

By Wednesday, Indonesian State power company PLN said it had 13.9Mt of coal stocks. It needs 20Mt to ensure a safe supply of 20 days according to Reuters.

Indonesian producers are required to reserve 25% of their production for the domestic market, but need exports to survive because local sales are capped at a price of US$70/t.

Given prices on the main Pacific coal indexes have been double, and at times triple or even quadruple that over the past six months, Indonesian miners are currently missing out on lucrative cargoes.

Newcastle coal futures for February have increased by more than 15% in the past week to ~US$195/t.

“Coal futures in Asia surged after Indonesia halted exports to help secure supplies for domestic power plants,” ANZ interest rate strategist and economist Hayden Dimes said.

“The country provides nearly 40% of the seaborne market, and the ban coincides with the peak demand period.

“Newcastle futures jumped over 15% last week to trade just below USD200/t.

“While Indonesian officials have suggested the ban may be removed once domestic inventories are boosted, the market is likely to remain on edge.”

Edginess in market brings support for coal miners

That edginess is working to the advantage of Australian coal miners, who have seen extreme price volatility this financial year due to the energy shortages seen overseas.

The Indonesian scenario is an example of the fragility of coal supply chains in 2022, after prices soared in the back end of last year when a wave of supply shocks hit producers in Russia, Colombia, South Africa, Indonesia and Australia.

While coal consumption is reducing in some parts of the world like Australia, where renewables continue to take a larger share of the national electricity market, worldwide consumption rose an estimated 9% last year to a record high, the IEA says.

Some high-level figures have predicted businesses which defy public pressure and stay faithful to the demonised commodity, responsible for the largest share of the world’s CO2 emissions, could be in for a “bonanza” as price shocks punctuate periods of higher demand.

Keen to stave off higher prices, Government agencies in the Philippines and Japan have appealed with the Indonesian Government to end the ban over the past week.

China has also become an increasingly large customer for Indonesian coal after banning Australian imports in 2020, but claims to have enough supply after ramping up domestic production to end a power shortage late last year.

Australia’s coal miners rode the higher prices to gains yesterday. Whitehaven Coal (ASX:WHC) was up 5.09% to $2.89, while New Hope Corporation (ASX:NHC) gained 0.87%. Stanmore (ASX:SMR) was up 4.67% to $1.12, while Bowen Coal (ASX:BCB) and Coronado (ASX:CRN) were up 2.86% and 3.45%, respectively.

Of the major players only Yancoal (ASX:YAL) was in the red.

Coal miners share prices today:

Stanmore wraps up debt package for US$1.2 billion BMC deal

Finding funding to develop a coal mine or fund its purchase can be fraught with difficulty these days but Stanmore Resources has managed to sew up a US$625 million debt facility for its US$1.2 billion purchase of BHP’s BMC interest.

Stanmore is expected to take control of the asset this year, one of three coal operations BHP has looked to sell as it responds to investor pressure to reduce its exposure to the commodity.

Stanmore said on Friday its debt deal included financiers advised or managed by Varde Partners, Canyon Capital Advisors and Farallon Capital Asia.

It puts one of the main building blocks in place for Stanmore, which is majority owned by Golden Energy and Resources, part of the empire of Indonesian family dynasty the Widjaja family.

Allegiance Coal set for higher prices

US based metallurgical coal miner Allegiance Coal (ASX:AHQ) is poised to enjoy a step change in its pricing from the Black Warrior mine after coke oven tests in Germany confirmed its suitability for High Vol A sales.

A large scale semi-industrial carbonisation test in a moveable wall oven at DMT Germany delivered a CSR result of 61%, comparable with High Vol A coking coals from the States.

High Vol A is the premium hard coking coal index sold from the US.

Two previous cargoes from the Black Warrior mine in Alabama have been traded at a discount to still high priced High Vol B indices so far.

Allegiance now says it will be able to negotiate pricing linked to High Vol A indices for its blended Mary Lee and Blue Creek produce. Those indices were last week trading at US$340/t FOB US East Coast.

A previously sold 55,000t Black Warrior cargo will be loaded next week through a major commodity trading house, with a second sale of 80,000t with a laycan fixed for February 20-March 2. Discussions will begin this month for future sales, which will be negotiated at the more lucrative High Vol A indices.