Coal exports soar as Indonesia cashes in on Australia-China trade tensions

With millions of fellow Indonesians unemployed by the pandemic-induced economic slump, coalminer Bambang Sunarjo is grateful for his country’s booming coal exports to China.

Engineers Irman, Muhammad Akhyar and Irfan Fitrianto at the Arutmin mine in Kintap, South Kalimantan.

With millions of his fellow Indonesians unemployed by the pandemic-induced economic slump, coalminer Bambang Sunarjo is grateful for his country’s booming coal exports to China, which have shored up his job and kept his ­extended family afloat.

But whether that enhanced job security has come at the expense of the Australian coal industry, following Beijing’s informal ban on Australian thermal coal imports in November, is not something he knows much about.

“I’m just thankful that this field is so strong and I am not very ­affected by the pandemic. Last year was gloomy, but things have been picking up since October and I assume a lot of this has to do with China and their interest in coal from Indonesia,” Mr Sunarjo told The Australian from the mine he works in at South Kalimantan, on Indonesia’s Borneo island.

“It’s good there is increasing interest from abroad to purchase Indonesian coal … because it means this field is still profitable, and that we can feel secure that we have our jobs.”

Last month Indonesia, already the world’s largest thermal coal exporter, shipped a record 15 million tonnes to China, according to figures compiled by international shipping association BIMCO. It is on course to exceed 16 million tonnes for January, compared to nine million tonnes last January.

The boom in Indonesian coal exports to China has been largely propelled by an extraordinary cold spell and heightened industrial demand in the world’s largest coal import market, but also from ongoing trade tensions between China and Australia.

In November, as China began turning away Australian coal — along with our wine, beef, barley and lobster — as punishment for Canberra’s support for an international probe into the COVID-19 pandemic’s origins, Beijing struck a three-year, $US1.5bn coal supply contract with Indonesia. It represented a fraction of overall Chinese demand for thermal coal, but was a “highly symbolic” message that “China can get its coal from other exporters, and is not impacted by Australia”, says BIMCO chief analyst Peter Sands. “It’s hard to deny Indonesia is taking up the slack from thermal coal.”

 

Indonesia’s coal sector, dominated by politically connected oligarchs, employs more than a million people and produces close to double the volumes of coal annually required for domestic consumption. Still, the industry is reluctant to concede it has benefited from Australia’s China woes, insisting Indonesian coal — with its lower calorific content — is no replacement for the more combustible Australian coal favoured by industrial cement and paper plants.

Indonesian Coal Mining Association executive director Hendra Sinadia says for that reason Indonesia cannot fill the market gap left by China’s Australian coal freeze. “From what I hear, the ones benefiting from China-Australia tension are Russia and South Africa, because the quality of their coal matches that of Australia,” he said.

Mr Sinadia says Australia-China tensions have, however, at least indirectly, benefited Indonesia by driving up the price of China’s domestic coal and forcing the government to open its imports gate to spot cargo.

Despite China’s best efforts it seems Australia has, perversely, also benefited from the Asian power’s record demand for thermal coal. Beijing may be looking to Russia, South Africa and Indonesia to replace what it once bought from Australia, but the impact on the market has been like a rising tide lifting all boats, says Rory Simington, principal coal analyst with Wood Mackenzie.

“China’s demand has lifted the price of South African and Russian coal and made Australian coal better value for the Indian industrial market,” he says.