Benchmark coal prices in Asia surged to the highest in almost two years following a government announcement from Indonesia concerning control of commodity exports, including coal.
The new rules for commodity exports would cause delays in outbound shipments of coal from Indonesia, Bloomberg noted in a report on the price news, adding the disruption comes amid climbing demand for coal amid the summer heat that drives higher electricity consumption for air-conditioning.
Demand for coal has increased considerably since the start of the U.S. and Israeli war against Iran, as the hostilities disrupt the normal flow of oil and gas out of the Persian Gulf.
The Indonesian trade ministry earlier today published technical regulations regarding the exporting of coal, palm oil, and ferroalloys, with the goal of centralizing the management of these exports under the umbrella of a state-owned entity, Reuters reported.
Following the Strait of Hormuz closure, Asian energy importers and the European Union bloc have been scrambling for alternatives to gas supply from the Middle East, currently trapped behind the Strait of Hormuz or not produced at all in Qatar, which halted LNG production as early as on March 2 and two weeks later sustained damages to the world’s largest LNG complex, Ras Laffan, from Iranian missile strikes.
Coal has emerged as the obvious alternative, despite transition efforts, especially in the EU. While the bloc is still racing with Asia to secure as much LNG as it can amid gas storage-refill season, coal is regaining lost territory as well. Japan and South Korea, notably, have boosted their consumption of the fuel since the start of the war. In South Korea, the coal surge was especially pronounced, with April coal-fired power supply soaring by 40%, the biggest jump since August 2019.
In this demand context, Indonesia’s new export controls that require producers to make sure there is enough supply of the respective commodities for the local market, among other new rules, will likely lead to a boost in purchases from other coal producers and contribute to higher prices for longer.
By Irina Slav for Oilprice.com
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