United Tractors, a heavy equipment distributor, forecasts that coal prices this year will remain slightly above USD 100 (IDR 1.56 million), a decline from last year's USD 170 average due to slowing demand from China and India.
Frans Kesuma, President Director of United Tractors, revealed that after experiencing high price volatility with an average Global Coal Newcastle Index (GCNI) price of USD 360 per ton in 2022, coal prices continued to decline and reached a new low in 2023.
The GCNI coal price touched USD 122 per ton in November 2023, down 72 percent from the peak price of USD 434 per ton in September 2022, before experiencing an increase in December 2023 driven by rising natural gas prices due to tensions in the Middle East as a result of the Israel-Hamas conflict.
"The drop in coal prices is mainly due to a decrease in import demand from China and India, the two largest coal consumers in the world," explained Frans Kesuma in United Tractors' (UNTR) 2023 annual report.
He said that China, still experiencing an economic slowdown, is trying to reduce imports and fulfill most of its coal needs from domestic mining production. The same situation also applies to India.
The decrease in natural gas prices has also caused a decline in coal demand in Europe. Gas prices have gradually returned to normal since late 2022, prompting several European countries to reactivate gas-fired power plants to replace coal-fired power plants.
Despite the continued decline, Frans mentioned that the average GCNI coal price in 2023 still stood at USD 173 per ton, higher than USD 142 in 2021.
Based on the existing trends, analysts believe coal prices will reach a new equilibrium. The higher average GCNI coal price in 2023 compared to pre-pandemic levels suggests that a new price equilibrium will be formed above the psychological threshold of USD 100 per ton. During January-March, the average coal price ranged between USD 110 and USD 120 per ton.
"For coal mining businesses, this price level is still quite profitable as long as mine productivity and efficiency can be managed properly," said Frans.
Frans also noted that coal prices strengthened starting from November 2023, nearing USD 130 per ton. If the Middle East conflict remains stable, prices are expected to dip in 2024 and 2025 but stay above pre-pandemic levels. This projection factors in slowed consumption growth in those years, with rising demand from China and India but declining demand in the US and Europe.
Frans stressed that Turangga Resources, United Tractor's coal mining arm, will navigate market uncertainties by optimizing sales prices and quantities while staying prepared for further price declines.
In 2023, Turangga Resources recorded coal sales of 11.8 million tons, including 2.5 million tons of coking coal, a 19 percent increase from 2022's 9.9 million tons.
United Tractors' coal mining division reported a net income of IDR 30.5 trillion in 2023, down 2 percent from IDR 31.1 trillion in 2022.
Indonesia targets coal production of 922.14 million tons this year, following a record-high output of 775 million tons in 2023, exceeding the target of 694.5 million tons. Coal exports totaled 518 million tons, with the rest allocated for domestic demand. However, export values dipped by 29.76 percent in January 2024 compared to the previous year, amounting to USD 2.41 billion.
Image source: Antara Photo/Andri Saputra
Source: https://jakartaglobe.id/business/united-tractors-predicts-coal-prices-to-hover-above-100
