March 21, 2024 - The Indonesian government has approved 922.14 million mt of coal production quota, popularly known as RKAB, for 2024, up nearly 30% from the targeted volume, the Energy and Mineral Resources ministry said in a statement March 20.

Earlier, the government had set a target of producing 710 million mt coal in the ongoing year. Indonesia's total production hit a historical high of 775.20 million mt in 2023, exceeding the target at 694 million mt, S&P Global Commodity Insights reported Jan. 22.

The development comes at a time when Asian thermal coal seaborne demand is expected to remain bearish or flat throughout the year amid slow economic activities in China, higher domestic production in India and efforts to curb usage of coal in power generation in several South and Northeast Asian countries. This has resulted in prices remaining rangebound so far this year.

According to S&P Global data, the average price of FOB Kalimantan 4,200 kcal/kg GAR was $57.47/mt in January-February of 2024, as compared to $77.92/mt in the year-ago period. The grade was assessed at $56.75/mt on March 20.

Even though the coal output in 2023 surpassed the announced target, market participants believe it could be challenging for the producers to achieve the approved RKAB for the current year.

An Indonesia-based producer said the approved quota is the maximum production if all miners operate at full capacity, but most of the miners usually meet 80% of the RKAB quota.

The ministry said out of the total 883 RKAB proposals, 587 mining companies received approvals, while 121 applications were rejected due to technical reasons. The government also approved 917.16 million mt of production quota for 2025, and 902.97 million mt for 2026.

According to an Indonesia-based trader, the country does not have the infrastructure to generate over 900 million mt of coal at the moment.

"If the producers want to increase their production by 18%-20% on a yearly basis, they will need to stock more excavators, dump trucks, barges, vessels and many more which will also add to their operating cost," the trader said, adding this could be possible if the demand outlook for 2024 was firmer.

Indonesia does not have manufacturing capacity for some of these tools such as the excavators and they mostly import it from China, Japan and South Korea, the trader added.

Sources said since China is the major driver of demand and currently the Chinese economy is barely showing any signs of recovery, the market does not see a significant rise in the country's overall import.

A balance between demand and supply is required to stabilize the market prices, a second Indonesia-based trader said, adding considering the current outlook of the market, over 900 million mt production seems to be an oversupply which could impact prices.

Weather Keeps Supply Tight, Domestic Needs Under Watch

On an average, Indonesia roughly produces 60 million-65 million mt of coal monthly. However, many mines, especially in Sumatra and South Kalimantan region, faced production loss in the first quarter due to unusually heavy rains that has kept supply tight.

"Mines in the Jambi region are especially facing the adverse impact and currently producing 20%-25% of their normal production capacity," the second trader pointed out, adding under these circumstances it is highly unlikely to cross 900 million mt of output quota.

Sources said higher approved quota could be government's attempt to stabilize the Indonesian currency by projecting chances of higher exports than last year.

"Only after the first half of the year, we will get clarity on the production estimates and miners will likely revise their output quota mid of year as per the demand," another Indonesia-based producer said.

The participants also said that the approval of higher RKAB could also be due to the rising demand of the nickel smelters.

"The producers supplied around 60 million mt to the smelters in 2023, while this year the supply could rise up to 90-100 million mt as many new smelters will start operation in the country," the first Indonesian trader said.

According to MINERBA One Data (MODI), Indonesia has produced 151.25 million mt of coal so far in 2024.