T

he world’s top thermal coal exporter must contend with significant cutbacks in coal demand as major buyers have imposed lockdowns to curb the spread of the coronavirus, which causes COVID-19.

Multinational market research firm IHS Markit estimates that Indonesian coal exports will fall to 363 million tons this year, which would be far below the government’s target of 395 million tons.

IHS Markit senior director for coal, metals and mining James Stevenson told The Jakarta Post on Friday that that the research company expected global thermal coal demand to shrink by 66 million tons this year, mainly due to drops in China (20 million tons), India (15 million tons) and Europe (17 million tons).

“We had expected light growth – just a couple million tons – before the coronavirus started happening, and its impact is pretty massive,” he said.

“The other thing is [that the market] is obviously very uncertain and we’ll be revising these numbers.”

Stevenson went on to say that the price of Indonesian coal, based on the M42 coal type benchmark, had fallen 12.4 percent over two months to US$32 per ton on March 20. The new price is “pretty close to cost levels, and that’s one thing that will cause the 32-million-ton reduction”.

However, IHS Markit also expects coal demand growth in Southeast Asia, particularly Vietnam. Regional demand is projected to grow by 4.5 million tons this year, despite risks of lower demand in Malaysia, Thailand and the Philippines following their respective lockdowns.

Meanwhile, Indonesian Coal Mining Association (APBI) executive director Hendra Sinadia told the Post on Thursday that members were most concerned about demand from India, which had plans to temporarily shut down several coal-fired power plants. The South Asian country is the world’s largest coal buyer after China.

Hendra went to say that coal orders to China, Japan and South Korea in February were unchanged. Japan and South Korea are the world’s third- and fourth-largest coal buyers.

“But the spread of the coronavirus is so fast that projecting the future is not easy,” he said.

Hendra’s statement captures the overarching uncertainty felt by coal industry stakeholders as Asian governments restrict economic activity to contain the spread of COVID-19.

Such restrictions, subject to change over the coming months, have reduced electricity consumption in a region that produces 80 percent of the world’s coal-generated electricity and thus undermine Indonesian coal sales.

However, the novel virus is not entirely to blame for lower Asian coal demand this year. Slower economic growth in India, import restrictions in China, a warm winter in Japan and the temporary shutdown of 15 coal-fired power plants in South Korea all contribute to reduced demand.

According to data from energy consultancy Wood Mackenzie, lockdowns in China and Malaysia have lowered electricity demand by about 35 percent and 25 percent, respectively. In India, power demand slipped 33 percent on Sunday, when the country underwent 14 hours of self-quarantine. The South Asian country entered a longer, three-week lockdown starting March 24.

“This will have a huge impact on fuel demand,” said Wood Mackenzie research director Bikal Pokharel. “In most Asia Pacific markets, similar lockdowns will significantly reduce gas demand. Meanwhile, in markets like Indonesia, where dependency on coal is much higher, coal demand will be significantly impacted as well.”

Indonesia’s top electricity company, state-owned PLN, expects power consumption to fall by 0.6 percent to 1.2 percent in 2020 from 245.52 terawatt-hours, assuming factory, office and retail activities remain sluggish over the next nine months. Almost 38 percent of PLN’s installed power capacity is from coal plants.

Responding to slumping coal demand, Energy and Mineral Resources Ministry Coal and Minerals Director General Bambang Gatot Ariyono said on March 12 that “a revision to this year’s production is almost certain.”

A week earlier, the energy ministry granted coal miners more flexibility over their annual work plans and budgets to enable them to adjust to the coronavirus-hit global economy.

The ministry issued on March 3 Regulation No. 7/2020 that allows coal miners to change their annual work plans more than once a year (Article 89). Miners may do so during a force majeure event, as is happening with many companies.

“This is a good move by the government during this pandemic,” said Dileep Srivastava, corporate secretary of Indonesia’s largest coal miner, PT Bumi Resources.

He added that the miner, listed on the Indonesia Stock Exchange as BUMI, aimed to forward a revision next month. The company produced 14.3 million tons of coal between Jan and Feb. 20, which is 7.8 percent higher than the same period last year.

Representatives of rival coal-mining heavyweights PT Adaro Energy and PT Bukit Asam told media outlets that neither company had any plans yet to revise their annual work plans.