Indonesian coal price is surging again, as China goes ahead with planned cuts in its coal production capacity, fueling demand for imports. This bodes ill for coal-based power plants in India like Tata Power’s and Adani Power’s plants in Mundra, Gujarat, which are unable to pass on increase in fuel costs to discoms due to contractual inflexibility.
The benchmark Indonesian coal price jumped to $83.97 a tonne in August from $75.46 a tonne in June.
China has targeted to cut its coal mining capacity by 800 million tonnes by 2020 end, starting from 2016. It has already slashed production capacity by 400 million tonnes by the end of June this year.
In the first half of this year alone, the Dragon cut mining capacity by 111 million tonnes, reinforcing its commitment to reduction target.
This comes as China ramps up focus on renewable power.
Tackling industrial and mining overcapacity has been a priority for Beijing to make China’s economy more efficient and environmental friendly, and in its five-year plan for the 2016 to 2020 period, the government set a goal to reduce its coal production capacity by that amount.
Now, with coal mining capacity cuts of 111 million tonnes in the first half of 2017, the total reductions for the period have been brought to 400 million tonnes, state planner National Development and Reform Commission (NDRC) said.
The massive capacity cuts have burdened coal producers with mounting debts, and also riled markets as generators have struggled to ensure adequate supply.
Prices of thermal coal, mostly used in generation, have more than tripled in China since the start of 2016 due to the curbs on production.
NDRC said this year it has been easier for coal companies to get bank loans, and that producers have had fewer bad loans and reported fewer cases of unpaid wages to workers.
NDRC will make more effort to help coal producers deal with their debt and give workers laid off from coal mines professional training, it said.
China produced 3.64 billion tonnes of coal in 2016, down 9 percent from the previous year, according to the National Bureau of Statistics.
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