Thermal coal trade remains profitable in Asia despite global resistance: industry

Thermal coal remains one of the most profitable commodities to trade in Asia despite the lack of optimal bank funding and backlash from several quarters of the world to end its usage due to high emissions of CO2 and other air pollutants, multiple traders and miners told S&P Global Commodity Insights.

At least a dozen traders S&P Global met at the Coaltrans conference at Bali in the week to Sept. 30 said that while the lack of funding from global banks has been an impediment for small miners, particularly in Asia, the cash-rich nature of the coal business has and will keep it afloat for years to come.

Even as multiple traders are involved in transactions, right from the time a coal cargo leaves a mine till it reaches end-users in other countries, the commission per ton earned by each trader translates into a reasonable amount, given the volume traded and the size of the shipment.

For 4,200 kcal/kg GAR coal originating from Indonesia, the most liquid grade of coal in Asia, if the landed cost in another country is $50/mt on a Supramax with 50,000 mt of volume, the commission for one set of trader ranges between 25-50 cents/mt, sources said. This comes to $12,500-$25,000 commission per shipment, or Rupees 1 million-2 million, approximately.

Platts, part of S&P Global Commodity Insights, assessed FOB Kalimantan 4,200 kcal/kg GAR coal at $57.50/mt Sept. 29, while FOB Kalimantan 5,000 kcal/kg GAR was assessed at $77/mt.

"Depending on the supply and demand situation, the trader margin goes up like it happened after the Russia-Ukraine war when supply was extremely tight and demand was strong," a trader from a large trading group, with operations in Indonesia, Singapore and India, said.

Miners continue to profit

While the production cost for 4,200 kcal/kg GAR coal ranges anywhere between $30-$35/mt, miners have refrained from selling it below $50/mt, given other costs involved like taxes and royalties to be paid to the government, sources said.

However, minimum margins still range between 25%-40% per metric ton of coal sold overseas, an official from one of the top thermal coal miners in Indonesia said, adding that for high-CV coal, margins are higher, but volumes are slightly lower.

The price of 4,200 kcal/kg GAR coal ranged $80-$90/mt in January, before it fell to $72-$75/mt in April and $50-$57/mt in September, according to Platts assessments by S&P Global.

An official from the sales department of an Indonesian miner said producers price their product keeping in mind the margins traders will keep for selling. "Because government regulations are so stringent for mining companies of all commodities, it's important to keep profitability at the top ... of the chain, otherwise producers won't survive," he said.

Multiple environmental agencies, banks, NGOs, human rights organizations and civil society groups have been for years campaigning against the usage of thermal coal for power generation as well as in the non-power sector like cement, steel and other metals.

While the US and large parts of Europe have managed to keep coal's share in the energy mix below 35%, overall dependence of coal in Asia is still over 70%.

Meanwhile, net profits of top miners soared in 2022 as global thermal coal prices surged due to the Russia-Ukraine conflict disrupting trade flows, with Europe seeking the fuel from Asia due to sanctions on Russia.

Indonesia's Bumi Resources reported a net profit of $525.3 million in 2022, soaring 213% on the year, Adaro reported a profit of $2.8 billion, up from $1.02 billion a year ago, while Glencore's net profit rose 248% to a record $17.3 billion last year, primarily on the back of high coal prices.