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Coal has had quite the year, and for a while it seemed that the commodity was reaching a semblance of price stability but that may not be the case after all. The crisis at the start was instigated by a supply crunch following global demand (catalysed by China) massively recovering in the wake of pandemic-related restrictions lifting; consequently, prices ran amok reaching their historic peaks in the summer of 2021. But as coal supplies shored up—with China re-opening many closed down coal plants—the crisis began to ease. It is now rearing its head again, this time because of Indonesia.

Indonesia is one of the biggest producers of coal (the fourth largest) exporting the dirty but precious commodity across the world. But after facing internal shortages of coal for domestic power production—with many islands experiencing power losses—the country decided to impose a short-term ban on exports. This sent China hurtling back to its coal crisis, being not only a major producer of coal but also an importer of coal. China consumes more than 50 percent of the total Indonesian coal that is exported by the country and almost 75 percent of China’s imported coal comes from Indonesia.

Naturally, prices are sprinting upward once again and not just Chinese futures. While the ban is not making anyone happy—from several Asian markets depending on imports to Indonesian coal miners, it was considered necessary by the Indonesian government to take such a drastic step and safeguard local needs. The government has a domestic market obligation policy in place which mandates Indonesian coal mining companies to keep in reserve at least 25 percent of their coal production for domestic use.

The policy also has a price ceiling of $70 per ton for coal producers to sell locally. But when global prices began to tear through their record peaks crossing $250 per ton, coal mining companies in Indonesia decided to break away from policy which led to domestic shortages.

The Indonesian government is now mulling penalties for companies that failed to meet the domestic market obligation aside from instituting the export ban until such a time when the domestic shortage eases. Whereas a portion of the ban was lifted and some ships carrying coal were sent off, whether the complete ban will be lifted or not will become clearer end of this month which will decide where prices will settle.

The next month outlook however is not very pessimistic for coal importers despite the surge in prices right now. Once ban lifts and global supply restores—given also the remobilizing of Chinese coal miners—prices will move toward stability which will be the time for cement manufacturers here in Pakistan to shore up their inventories. Not right now!

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