Indonesia cuts H2 March thermal coal reference prices amid market dissent

Indonesia lowered its thermal coal reference prices, the Harga Batubara Acuan, for all grades in the second half of the month, according to an official document seen by Platts March 15, amid resistance from market participants over the implementation from March 1.

The Indonesian Ministry of Energy and Mineral Resources enacted a new regulation, effective March 1, mandating all coal sales to the overseas market be priced exclusively based on the HBA. Earlier, spot and long-term contracts used indexes from independent price reporting agencies.

The market experienced turmoil after the implementation, fueled by doubts regarding several aspects -- the timing and the procedure of the rollout, the pricing of existing contracts, the past data used and the methodology employed by the government to determine HBA, and the willingness of the market to accept higher HBA prices amid weak demand from major importers. While the government offered clarity on a few aspects, participants remained wary of a government determining the prices of a freely traded commodity.

The coal price benchmark is now published bimonthly on the 1st and 15th of each month. For the HBA announced on the 15th of the month, the calculation considers 70% of coal sales prices submitted by miners during the second week to the third week of the previous month, and 30% of coal sales prices reported by miners during the fourth week of two months prior to the first week of the preceding month of the release.

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 price for 6,322 kcal/kg GAR high-grade thermal coal, on which the HBA pricing has traditionally been based, fell 8.2% from the March 1 price to $117.76/mt. The price of 5,300 kcal/kg GAR dropped 2.4% to $80.70/mt for the second half of the month.

The prices of low CV (calorific) also decreased in the latest HBA pricing index. The country set the HBA for 4,100 kcal/kg GAR grade at $49.44/mt, down 2.5% from the prices announced on March 1.

Platts, part of S&P Global Commodity Insights, assessed the price of 4,200 kcal/kg GAR coal at an average of $49.14/mt FOB this month as of March 14. Platts last assessed the grade at $49.90/mt FOB on March 14.

Indonesia lowered the HBA for low-CV 3,400 kcal/kg GAR coal by 1.3% from the last price published on March 1 to $33.71/mt. Platts started assessing the 3,400 kcal/kg GAR grade on Jan. 2 at an average of $30.6/mt in March, compared with $29.92/mt for February. Platts assessed the grade at $31/mt FOB on March 14.

Market trying to adjust to new mandate

As the weeks progressed, the market was still trying to gauge the demand and pricing fundamentals amid regular developments in the Indonesian coal market.

Buyers delayed their purchasing decisions hoping to gain more understanding and clarity into the new guidelines. With reference prices for most grades exceeding market prices, both sellers and buyers were skeptical that the market could maintain those elevated HBA prices. Some believe that prices will eventually have to come down to reflect the market dynamics.

However, market activity increased after the Indonesian government provided miners with the flexibility to sell below the HPB and honor existing contracts at their agreed upon prices. The HPB is the lowest price at which a cargo can be sold based on its calorific value, volume, and other specifications (moisture, ash, sulfur). However, royalties and taxes would still be required to be paid based on the reference prices or sales, whichever is higher.