China's Coal Price Influence Could Fall

China's insatiable demand for coal has given the industrializing country a significant role in shaping global seaborne thermal coal prices. But producer nations like Indonesia are eager to change that.

China currently consumes about half the world's coal, and uses that coal to supply its residents with more than 90 quadrillion BTUs of energy, according to a US Energy Information Administration (EIA) report. Further, almost 80 percent of the electricity produced in China comes from thermal coal, a figure that is set to double by 2035.

Additionally, despite its huge contribution to global production numbers — 3.8 billion short tons in 2011 — China remains a net importer of thermal coal, the EIA report also notes. China's principal source of seaborne thermal coal is Indonesia, the world's largest thermal coal exporter; the vast majority of this coal comes from the Indonesian coal-producing province of East Kalimantan.

China's impact on this market should not be understated. Indonesia exports just over 200 million tonnes (Mt) of thermal coal annually, and the majority of that amount is consumed by China.

However, recent slowdowns in China's economy, coupled with strong stockpiles, have left Indonesian producers hurting, both in terms of prices and sales.

In September of last year, the Indonesian Coal Mining Association cut its 2012 production forecast to between 340 and 350 Mt. Exports to China, while up 15 percent on the year, fell in the same month by 16 percent compared to the previous year, Reuters reported.

“When market conditions weakened earlier this year, Chinese coal buyers forced Indonesian suppliers to reduce their contracted coal prices by very large amounts,” Roleva Energy's managing director, Bart Lucarelli, told Bloomberg recently.

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