Indonesia’s New Partial Ban on Coal Exports Will Impact EU and Bulkers

For the second time this year, Indonesia has banned the export of coal saying it was falling short of its domestic targets. While the current move is only a partial ban against some miners it nonetheless comes at a difficult time raising concerns both in the bulker community and especially in Europe where the EU’s phased-in ban on Russian energy expanded this week to include a total ban on Russian coal imports.

The Indonesian Energy and Mineral Resources Minister announced the latest round of bans on August 10 saying that miners had failed to meet the target to sell 25 percent of the coal mined into the domestic market. The obligation is one that Indonesia says is necessary to maintain domestic coal supplies, which are one of the primary sources of energy.

At the beginning of 2022, Indonesia announced it was suspending all exports of thermal coal citing a domestic shortage. At the time, the Ministry of Energy said that coal inventories at 20 state-owned and private power plants were running low, raising the possibility of blackouts for up to 10 million customers. The Indonesian government tightly regulates its coal exports and controls the price of coal. Firms that do not follow the rules can be banned from the export market.

This week the Energy and Mineral Resources Minister contended that 71 coal miners failed to meet their domestic market obligations. The ministry said that 48 of the miners would be now banned from exporting coal while the Indonesia Coal Mining Association immediately contested the ban.??

“Despite legislators’ concern over shrinking domestic coal stocks, another outright ban of all coal exports remains unlikely for now,” predicts Niels Rasmussen, Chief Shipping Analyst at BIMCO.??He pointed out, “inventories in the state’s power utility company PLN remain above 4.5 million tonnes, a level considered to be secure.”

Any prolonged interruption in coal shipments however could be especially difficult for Europe as it works to implement the ban on Russian coal imports while it is also seeking to build stockpiles ahead of the coming winter months. The EU imported 39 million tonnes of coal from Russia in 2021, equal to 36 percent of EU coal imports. Indonesia had pledged to increase exports to help fill the gap for Europe.

With Russian gas exports also banned, several European countries have been looking to use coal to make up for the short supply of gas. The Netherlands and Austria, for example, have both announced plans to restart coal plants to make up for an anticipated shortage of gas. Poland, while being the EU’s largest producer of coal, imported more than eight million tonnes of Russian coal in 2021. This week it was expecting a third of its coal imports to arrive from Indonesia while it has also been working to diversify its coal suppliers with shipments also coming from South Africa this week. 

“Indonesia is the world’s largest exporter of coal. In 2021, the country exported 441.5 million tonnes of coal equal to 31 percent of global coal exports. All exports are moved by ship and in 2021 were equal to eight percent of global dry bulk cargo demand,” says Rasmussen.

Indonesian officials recently reported that the country’s mining sector expanded by just over four percent in the second quarter of 2022, a growth which was attributed to the rising foreign demand for coal and specifically from Europe.

Rasmussen forecasts that the current issues in the coal market will see China and India move to buy more coal from Russia. He expects these shifts could help to reduce some of the demands on Indonesia, which has been China’s largest supplier. He also predicts that the shifts in supply patterns will drive up the average sailing distance for global coal shipments and demand overall for bulkers in the coming months.