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T Coalindo Energy, in cooperation with Argus Media Limited, launched on Thursday the Indonesian Coal Index (ICI) 5, a reference price for low-rank coal with a calorific value of 3,400 kilocalories per kilogram (kcal/kg).

Coalindo’s president director Supriatna Suhala, who is also an executive director at the Indonesian Coal Mining Association (APBI), said that prior to the launch of the ICI-5, there was no reference price for coal with a calorific value below 3,950 kcal/kg.

The presence of the index could help boost the low-rank coal trade in the country, he added.

“Currently, we don’t have a market for coal with a calorific value of around 3,000 kcal/kg in the country. But, in the future, there will be more coal-fired power plants built to use low-rank coal, such as the one in Pendopo, South Sumatra, which is owned by DH Energy,” he said.

The index shows that on Nov. 4, the price of coal with a calorific value of 3,400 kcal/kg stood at US$37.66 per ton. Coalindo has also issued other indexes for higher-rank coals, which are ICI-1 (6,500 kcal/kg), ICI-2 (5,800 kcal/kg), ICI-3 (5,000 kcal/kg), and ICI-4 (4,200 kcal/kg).

The methodology used by Coalindo in determining prices is determined by a panel comprising coal producers, buyers, traders and brokers. They submit to the company their views on the market price of Indonesian coal every week.

The price submissions must represent the value of deals forged by the panelists, or the value at which a deal could be done in the free and open market for delivery over the following 90 days.

Coalindo will then review the submissions to ensure that they are reliable and representative.

Indonesia’s coal reserves with calorific values ranging from 3,000 to 3,800 kcal/kg amount to 10 billion tons. However, a domestic market for such coal does not yet exist.

The lowest calorific value currently used in the country is 4,200 kcal/kg. Coal with calorific values between 3,900 and 4,000 kcal/kg is mostly exported to India.

Data from the Energy and Mineral Resources Ministry shows that in 2011, the country’s target is to produce 327 million tons of coal, comprising 35 million tons of low-rank coal (3,800 – 4,500 kcal/kg); 198 million tons of medium-rank coal (4,900 – 6,000 kcal/kg); and 94 million tons of high-rank coal (5,700 – 6,000 kcal/kg).

Next year, coal production is set for 332 million tons, comprising 29.3 million tons of low-rank; 191.6 million tons of medium-rank; and 111.1 million tons of high-rank.

In 2013, production is targeted at 337 million tons, comprising 29.7 million tons of low-rank; 194.5 million tons of medium-rank; and 112.8 million tons of high-rank.

The director general for minerals and coal at the Energy and Mineral Resources Ministry, Thamrin Sihite, said the government would use the ICI-5 to determine the Indonesian Coal Reference Price (HBA/HPB). Currently, the price refers to ICI-1, Platts-1, Newcastle Export Index (NEX) and Newcastle Global Coal Index (GC).

“If the index [ICI-5] fulfills the criteria of the market, we’ll receive higher royalties [because more mining companies will produce low-rank coal]. That’s why we’ll use the index,” he said.

Meanwhile, Bloomberg reported that Indonesia, the world’s largest exporter of power-station coal, cut the benchmark price for sales in November by 2.2 percent. The cost of coal with a gross energy value of 6,322 kilocalories was set at $116.65 per metric ton, compared with $119.24 in October, according to a statement released by the Directorate General of Minerals and Coal.