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This 11% Drop Could Be A Gamechanger in Coal

It's not a huge amount. But it may show a brand new trend get started in the coal market.

One that could have huge implications for supply, and prices, globally.

I'm referring to data coming out of major thermal coal producer Indonesia this week. Suggesting that the country's coal output is finally starting to decline.

Related: Ten Facts About Coal You Probably Didn’t Know

Reuters quoted government officials as forecasting that Indonesia's 2014 coal production will be lower than last year. With the country's coal and minerals director general noting that exports are also expected to drop.

"We are optimistic we can achieve exports of 310 million tons until the end of the year," said the official.

Such a figure would represent an 11% drop in exports, as compared to 2013 levels. With exports during the previous year having totalled 349 million tonnes, according to government statistics.

All of which implies that Indonesia's coal exports are going to fall by nearly 40 million tonnes this year. A significant loss of supply on the global market.

More importantly, this is the first reaction we've seen from Indonesia in response to currently-depressed conditions in the coal market. Up until now, production and exports had been increasing steadily--even in the face of falling prices, and dwindling profits for local producers.

Economics may be to blame for some of the cuts that are apparently coming this year. With the government saying total Indonesian production will likely come in around 400 million tonnes--down from 421 million in 2013.

Related: Coal Enters New Phase of Insecurity

New government policies on export licenses and regulations are also likely having an effect. With many unlicensed or illegal coal mining operations across the country now being forced to come clean, or have their shipments halted.

Whatever the reason, this is excellent news for the coal market. Indonesia had been one of the few places that was still keeping global consumers well-supplied. With the loss of output here, things are going to get significantly tighter in terms of supply and demand.

Here's to the tide turning,

Dave Forest

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