Indonesia's efforts to set a new reference price for coal through a government scheme have not received a positive response from major buyers in China.This rejection has the potential to weaken Indonesia's position in determining the export value of its mainstay thermal coal commodity.Since March 1, 2025, the Indonesian government has started to enforce a new reference price called the Reference coal Price (HBA) as a benchmark for domestic and export coal transactions, replacing the role of the Indonesian coal Index (ICI) which was previously predominantly used by the market. Previously, the HBA was only used as a basis for calculating royalties.However, almost two months since its implementation, the majority of Chinese coal buyers are still using the ICI pricing scheme in their transactions.Two Chinese coal traders said that HBA was considered less transparent, updated less frequently, and priced higher than ICI.The Indonesian coal Mining Association (APBI) also acknowledged that most exporters have not switched to HBA because buyers feel more comfortable and familiar with the ICI pricing mechanism."We have conducted an evaluation and are currently reviewing the impact. Once completed, we will submit the results to the leadership for policy purposes," said Julian Ambassadur, Director at the Ministry of Energy and Mineral Resources (ESDM), when asked for his response regarding the implementation of the HBA, as reported by Reuters, Thursday (24/4).However, he was reluctant to detail the results of the evaluation or respond to the low adoption of HBA.Indonesia is the world's largest exporter of thermal coal, and its exports to China in 2024 are expected to reach USD 17.2 billion.However, Indonesia is still struggling to strengthen its influence in global price formation, amid efforts to reform the mining sector and increase the downstreaming of national mineral resources.This policy was initially only applied to spot transactions since early March, while long-term contracts that were already running still used ICI prices.Permata Bank Chief Economist Josua Pardede assessed that this policy aims to increase exporter and state revenues.But he warned that this strategy could backfire if higher prices prompted buyers to look for alternatives.One national coal company, who declined to be named, said the high HBA price made the transition process difficult."We are still using ICI for sales because the HBA price is making us lose more," said the source.Toby Hassall, a coal analyst at LSEG, added that the policy could dampen investment appetite, given that many coal producers are already operating at a loss.Weak Demand, Prices DepressedOn the other hand, weak demand from China and India — the world's two largest seaborne coal buyers — also weakens Indonesia's bargaining position in determining prices.According to Chinese customs data, China's coal imports in March 2025 fell 6% annually to 38.73 million tonnes.Meanwhile, shipments from Indonesia fell further, hitting a 9% decline.China's top importer, Shenhua Energy, even stopped all purchases of imported coal in March due to piling stocks at ports.
Source https://djakarta-miningclub.com