Market sources familiar with the development said about half of the total requirement for 2023 was estimated to be consumed by state-owned PT Perusahaan Listrik Negara, or PLN, at 81 million mt, with the rest expected to be consumed by independent power producers.

The Ministry of Energy and Mineral Resources of Indonesia prepared a list of 125 miners and what each of them specifically needed, from volumes to coal grades and to whom to supply to, the letter showed.

While the data was confirmed by a PLN source, there was no response to queries sent to the Ministry of Energy and Mineral Resources before publication.

“About fulfilment of coal domestic needs by holders on Coal Mining Concession Work Agreement (PKP2B), Mining Business Permit and Special Mining Business Permit Mining commodity production operations in 2023, we convey the data need of each of the PLTU that needs to be fulfilled by your company and to input the marketing plan and DMO (domestic market obligations) in the application of e-RKAB,” the letter reads.

These projections were derived from the ongoing discussions between the ministry, PLN, independent power producers, and miners, industry sources said, which were able to provide these stakeholders with a plan for the upcoming year. “We got this letter from the government, and now we will work on our internal budget and budget the plans for next year,” said a miner based in Indonesia.

“The projection already shows a huge increase in domestic demand out of the power sector, so I expect that supply will tighten again,” a producer said.

The power sector's coal demand was forecasted at 127 million mt for the whole year at the beginning of 2022, while PLN's was initially set at 64 million mt, but PLN then requested an additional 5.4 million mt and 2.2 million mt of thermal coal vessels to the ministry in July and August, respectively. This constituted a 26.7% annual increase in projected coal demand from Indonesia's power sector.

“It’s not consumption by the PLN or the power sector but also a sign they want an increase in supply,” another producer based in Indonesia said.

Upwards projection driven by demand expectations

Market sources noted the forecast came as Indonesia's domestic demand for coal-fired power has been increasing. Producers also anticipated higher demand from the nickel smelter sector and the cement industry.

Demand for the domestic cement sector for coal was estimated at some 16 million mt and around 35 million mt from smelters in 2022, sources said.

“It is mostly a requirement of low-CV miners. All of the major low-CV miners are boosting production next year. The big miners are collectively expected to come in close to 30 million mt," said an Indonesian miner.

Thermal coal market obligations

Thermal coal miners in Indonesia are subject to domestic market obligation rules, which require them to sell a quarter of their output for local consumption. PLN, cement, and fertilizer industries must be supplied by the miners with the price cap set by the government. The price caps are based on the domestic HBA index.

Thermal coal prices worldwide also remained high after the start of the Russia-Ukraine war due largely to extra demand from Europe, which imposed sanctions on fuel from Russia.

Kalimantan was calculated 4,200 kcal/kg GAR coal at $90.50/mt FOB Nov. 7; averaging $86.50/mt FOB so far in 2022 compared with an average of $67.05/mt in the same period of 2021, data showed.