Indonesia's timing on new coal export pricing rule may not yield swift results

As Indonesia gears up to regulate coal export prices by mandating miners to sell and pay taxes on a domestic index set by the government, market participants remain unsure of the timing and whether it will help meet the larger goal of fetching high prices for the countries' natural resources in the near to midterm.

The domestic reference price called Harga Batubara Acuan, or HBA, which was used to determine average coal product prices and royalty payments for exports, started being used as an export price reference from March 1, according to Indonesia's energy ministry. While the miners have been given leeway to sell below the HBA if they deem fit, they'll still have to pay royalties and other taxes on the price set by the government.

Officials previously indicated that Indonesia's natural resources are undervalued in the global market and asserted that, as the world's largest coal exporter, the country should have the authority to set prices. They believe the decision will result in more favorable pricing for Indonesian coal.

However, market participants believe that the timing of this new regulation may not be ideal, as China and India —two of the largest markets for Indonesian coal, accounting for over 60% of export volumes— are currently well-stocked. Additionally, with domestic production at record levels, it is unlikely that this regulation will generate buy-side pressure to drive higher bids.

"Buyers would naturally want miners to honor existing contracts at pre-decided prices, but signing fresh contracts and negotiating spot deals will be a challenge for the time being. Had the demand from China and India been strong, higher bids would have been possible, but now everyone is on the sidelines," said a senior official of Thailand-headquartered Banpu Public Company which owns coal mines in Indonesia. "There will likely be production cuts if miners aren't able to strike deals at the government-set price, and then possibly a supply shortage," the official added.

The HBA comprises prices of four grades of Indonesian thermal coal, and miners producing higher or lower grades normalize their values based on the closest index published by the government. The HBA price published by the government on March 1 for low-CV 3,400 kcal/kg GAR coal was at $34.16/mt FOB, while Platts' assessment for the same grade stands at $30.85/mt FOB. Similarly, HBA for 4,100 kcal/kg GAR coal was set at $50.70/mt but Platts assessed the slightly higher grade of coal 4,200 kcal/kg GAR at $49.50/mt FOB on March 12.

"It remains a challenge for the miners, as they have to pay higher taxes than their actual selling prices. Each company will have different strategies, but in general, they are looking for ways to improve operational efficiency in order to reduce production costs," said Gita Mahyarani, acting executive director of the Indonesian Coal Mining Association APBI.

China and India stay away

While both India and China recorded a highest-ever domestic coal production in 2024, the countries have also been sitting on decent stockpiles at power plant and port levels. Coal stocks at Indian power plants were at 55.83 million mt on March 8, close to 19 days of coal burn and a multi-month high, latest Central Electricity Authority data showed. Meanwhile, sources said together with port side stocks and reserves at state-run Coal India Ltd, volumes are at upwards of 100 million mt in India.

Stocks at China's major northern ports including Qinhuangdao, Jingtang, and Caofeidian, were at 31.15 million mt on March 11, up from 28.54 million mt a week-ago, sources said.

"Let's not forget that while stockpile levels are healthy in both these countries, domestic production is also going robust. High-CV coal requirements can also get fulfilled from other origins like Australia, South Africa, Russia and the US," an India-based trader said, adding there will likely be volume losses and production cuts in Indonesia this year.

In 2024, India achieved a record coal production of over 1 billion mt, an increase of nearly 8% on the year, while China's coal production reached an all-time high of 4.7 billion mt. Traders dealing with both these markets said even if miners offer below the HBA levels, they will have to find a way to balance costs to pay taxes at the end of the year. "The moment HBA falls below other market indexes, they'll ask for a premium over HBA which will likely not be accepted by the buyers," they said.