China coal futures surge on supply worries amid Indonesia export ban

The most-active thermal coal futures contract, for May delivery, on the Zhengzhou Commodity Exchange opened up 7.3% higher and is at 708 yuan ($111.10) a tonne, up 5.5%, at 0225 GMT, on track for its biggest daily increase since Nov. 25. The increase follows Indonesia's announcement on Saturday banning coal exports in January because of worries that low supplies at its domestic power plants could lead to widespread blackouts.

China's thermal coal futures surged by as much as 7.8% to kick off 2022 on concerns of supply disruptions after Indonesia, its biggest overseas supplier, banned exports. The most-active thermal coal futures contract, for May delivery, on the Zhengzhou Commodity Exchange opened up 7.3% higher and is at 708 yuan ($111.10) a tonne, up 5.5%, at 0225 GMT, on track for its biggest daily increase since Nov. 25.

The increase follows Indonesia's announcement on Saturday banning coal exports in January because of worries that low supplies at its domestic power plants could lead to widespread blackouts. China sourced 178 million tonnes of Indonesian coal, mostly thermal coal, in the first 11 months of 2021, accounting for more than 60% of its total coal imports, customs data showed.

The ban comes amid a tumultuous time for the coal market after prices surged to records last year because of falling Chinese supply that caused some regional blackouts. Zhengzhou futures climbed to a record 1,848 yuan on Oct. 19. "Indonesian coal is mainly shipped to coastal regions in eastern and southern China and accounts for about 20% of the total supply in the region," said Zhai Kun, an analyst at Guotai Junan Futures in a note.

The Indonesian export ban is expected to tighten coal supply in the Chinese market since China's domestic coal output is already at a record high, Zhai said. China churned out a record 370.84 million tonnes of coal in November to ensure sufficient energy supplies for the winter heating season. But output is forecasted to slip with power plants slowing down their stockpile replenishing while the government carries out crackdowns on illegal mining.

"A supply cut is certain as many Indonesian miners have declared force majeure, but in the meantime China's domestic supply is ample," said a Singapore-based coal trader, referring to force majeure, the legal term for when a supplier cannot meet a contract because of forces beyond their control. ($1 = 6.3725 Chinese yuan renminbi)

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