I've talked about it a lot lately. How the thermal coal market today pivots on one, single factor.
Global coal demand is a lot more robust than widely believed. Just this month we found out that coal imports by Indian power companies jumped 26.5% in the year ended March 31. That follows news that coal demand from Japanese utilities rose 19.3% during the same period.
The only thing holding the market back is Indonesian coal exports. Which have been growing the last few years in step with increasing demand.
Market observers are realizing that Indonesia is the key to coal prices going forward. With a slew of analysis coming out the past few weeks on the production situation here.
There have been a wide range of conclusions. With some analysts believing the Indonesian government will curb production this year. While others suspect regulators have little power to stop coal miners in the country.
But more than the conclusions, a few data points from such reports are worth noting. As they paint a bullish picture for coal--one that few onlookers have picked up on.
The first point of note comes from a report by World Coal this week. Where analysts estimate that the marginal production cost of Indonesian coal is $63.60 per tonne. Below such a price, "production shutdowns are anticipated".
The interesting thing is: the World Coal article took this to be bearish. Noting that current global coal prices are well above $63.60. Indicating that Indonesian production should stay strong.
But even as this report was released, we got another critical data point. From market specialists OreTeam--who report that prices for Indonesian export coal hit an average of $54.43 per tonne during March.
That figure is much lower than global prices. Largely because Indonesia's coal tends to be lower quality than supply from places like Australia or South Africa.
Put these figures together, and they suggest Indonesia's export coal industry is actually running well below its "shut down" price. An observation that jives with reports lately of local producers coming under financial pressure--and looking at closing pits.
This may end up being a lot more supportive for supply and pricing than many observers believe. We need to be watching this part of the world closely over the coming months.
Here's to the real price,
By Dave Forest