The December 2016 HBA hits to its highest level since May 2012
The Indonesia coal benchmark price hits to its highest level since May 2012. The government declared benchmark prices for Indonesian thermal coal rose for seven months in a row.
Interestingly, the highest monthly average HBA increase occurred in this month since the establishment of HBA or since January 2009.
The Director General of Mineral and Coal of Indonesia, the coal regulator of Indonesia who has an authority to declare the monthly benchmark price for Indonesian thermal coal, had declared December 2016 HBA at US$ 101.69 per ton for 6322 GAR power plant coal.
DGoMC has increased the monthly Indonesian thermal coal price reference for December delivery by 19.79% a ton. This increase is the highest average monthly price gain since January 2009.
In the meantime, the December 2016 HBA was 90.04 % higher the comparable period in 2015.
The Indonesian coal price reference of December 2016 raised US$ 16.80 a ton from November 2016. An increase or decrease in four international coal indices such as ICI-1, Platts-5900, NEX and GC will cause an increase or decrease in Indonesian coal price reference every month, as HBA is linked to those indices.
The coal price reference in Indonesia was established to fulfill the requirement of mining law 04/2009 and ministerial decree No.17/2010. In addition to that, it aims to increase government revenue from royalties from coal producers.
According to the data from Director General shows that the government has fixed US$ 25.13 a ton (up 90.09% Y/Y, 91.10% Year to Date and 19.78 % month on month) for the coal with calorific value 2,995 kcal/kg on GAR with total moisture 50.10% on as received basis for December 2016 FOB vessel delivery. In the meantime, the government is also declared US$ 71.32 per ton as HPB for 5000 GAR coal with total moisture 22.40%, Ash 8.90% and Sulphur 0.54% for December 2016 deliveries.
The declared Indonesia thermal coal reference price (or called HBA) for February 2016 was the lowest in 96 months or since launching of HBA by the government of Indonesia. The royalty and taxes will be calculated based on this declared HPB. Interestingly, the highest monthly average price occurred in February 2011, while the lowest coal price occurred in February 2016.
Indonesian coal benchmark price for December 2016 was calculated based on calorific value of 6,322 kcal/kg (GAR), stated to be using a formula based on the November 2016 index average of ICI-1 (Indonesia Coal Index) 25%, Platts-5900 25%, NEX (Newcastle Export Index) 25%, and GC (globalCoal Index) 25% and its was calculated considering coal with GCV (GAR) 6,322 kcal/kg, Total Moisture (arb) 8.00%, Total Sulphur 0.8% (arb), Ash Content 15 % (arb) and delivery free on Board (FOB) Vessel basis and apply to spot contract, delivery between 1 – 31 December 2016.
The highest benchmark price was declared by the Ministry of Energy & Mineral Resources of Indonesia in February 2011, and this month’s declared price is around US$ 25.36 a ton or 19.96 per cent lower compared to Feb’ 11 benchmark price. In the meantime, this month’s declared price was around US$ 50.77 a ton or 99.71 per cent higher compared to Feb’ 16 benchmark price, Feb’ 16 price was the lowest price ever declared by DGoMC.
The government of Indonesia was publishing a monthly coal price reference (HBA & HPB) since January 2009 to be used by coal producers for all spot and term contracts.
However, the official implementation of HBA was commenced since September 2011 and according to government regulation, the coal benchmark price must be used by the holders of production operation IUPs, special production operation IUP’s, and CCoWs as a reference in determining the coal selling price for a particular period.
HBA of February 2011 was the highest since the launching of HBA by the government of Indonesia (US$ 127.05 / MT for 6322 GAR coal) and the lowest was declared in February 2016 (US$ 50.92 / MT).
The declared HBA in this month is valid for the spot price (loading on or before 31 December 2016), while as for term price (up to 12 months supply), the average reference price (HPB) of the previous three months will be used to determine the selling price. (50% of the latest available month’s HPB (this month) 30% one month prior HPB and 20% of two-month prior HPB).
The government is also declaring the price marker for eight brands of Indonesia’s coal, which are most commonly traded in the market. Those eight brands act as the benchmark and used to calculate other 67 coal types with a quality similar to the coal price markers.
Indonesian coal prices have started to move towards South since last two weeks after rallying for around 6 months. China ’s production cuts relaxation caused lesser imports into China, which pushed down the global coal price for last two weeks. The market players are forecasting, the coal prices will likely fall further and stay flat starting from Q1, 2017. The latest projection is almost a reversal of forecasts that the market has made just a month back.
The coal market was oversupplied due to high production and sluggish demand for coal consuming countries in the past few years. Even though the oversupply issue was still not vanished away completely, the current levels of coal output are still huge, but the recent changes in coal producing countries except India are definitely indicating a tightening on output in coming years. The tight market is expected to keep the coal prices at a stable level in the coming weeks/ months. However, the China’s coal output directions will play a major role to decide the direction of coal prices in the future.
How long China is going to determine the direction of global coal prices?, the coal producing countries only able to answer the question. Indonesia is trying to push more coal for domestic market than export market. Once Indonesia’s 35000 MW power plants ambition come into reality, then coal exports from Indonesia will be reduced drastically compared to current levels.
Indonesia has reduced coal output at least by 30% year on year in the first six months of 2016 and the country’s exports for the same period declined 32% while domestic consumption increased 8%. India is still on its track to achieve a billion tons of coal output by 2019 / 2020 and no sign of coal output cut is seen. However, Indian coastal base power plants still depend on imported coal as the landed cost of imported coal is still cheaper than domestic coal prices.
Click here for full details of Indonesian coal price reference since January 2009.(cs)
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