Chinese Buyers Push Back on Indonesian Coal Contract Waivers

Indonesia, the world’s biggest exporter of thermal coal, has altered production and export policies several times this year. Government production quotas have constrained shipments, and officials have cut miners’ quotas. Strong El Niño conditions have also reduced rainfall and river levels, disrupting coal barge movements to export ports in recent weeks.

The waiver clauses sought by Indonesian exporters would remove their obligation to deliver contracted volumes if the government again reduces production or export quotas, or delays export approvals. Chinese buyers are reluctant to accept the terms, Bloomberg’s sources said.

China’s coal imports fell 6% year over year in September, with robust inventories, restricted Indonesian supply and higher import prices among the factors cited. Imports also declined 6% year over year in October.

“Chinese buyers appear reluctant to aggressively restock at current elevated price levels, given comfortable inventory positions and expectations for improving domestic supply,” Jenny Huang, a senior director at Fitch Ratings, told Reuters. Fitch said last month that Asian thermal coal prices are expected to remain elevated in the coming months as gas-to-coal switching strengthens demand while supply from China and Indonesia falls. It also cited strong coal demand in Japan and South Korea and uncertainty around Indonesian export volumes.