Global coal prices in the July contract took a dip amid growing demand for increased renewable energy capacity in China and Asia.
Based on data from Refinitiv, over this week’s trading period (June 3-7, 2024), coal prices significantly declined.
At the beginning of the week, coal was priced at $144.45 per ton, but by the week’s end, it had dropped to $133 per ton, falling more than $11 per ton in just five days.
The market’s concern arose following China, a major coal importer, doubling its current installed renewable energy capacity, which suggests that China will continue to lead in renewable energy implementation.
The International Energy Agency (IEA) reported that China installed nearly 350 gigawatts (GW) of new renewable energy capacity in 2023, which accounts for more than half of the global capacity. If the world’s second-largest economy maintains this pace, it’s likely that China will exceed its 2030 target this year.
China’s official target is to reach an installed capacity of wind and solar power of 1,200 GW by 2030. However, as of April this year, the IEA announced that this figure had already reached 1,130 GW.
Moreover, India is ahead in its renewable energy addition plans, aiming for 500 GW of non-fossil fuel capacity by 2030. This target includes about 15 GW from nuclear while the majority consists of 293 GW from solar power and 100 GW from wind power.
Members of the Association of Southeast Asian Nations (ASEAN) are aiming to achieve 225 GW of renewable energy by 2030, with Vietnam in the lead at 84 GW, followed by Indonesia at 44 GW, and the Philippines at 30 GW.
As countries continue their transition to renewable energy and interest in coal as an energy source wanes, it will have a negative impact on countries that rely heavily on coal for their income, one of which is Indonesia.
The declining demand for coal, accompanied by the depreciation of global coal prices, is already being felt by Indonesia.
The Central Statistics Agency (BPS) showed that, in terms of volume, Indonesia’s coal exports from January to April 2024 reached 130.3 million tons, up by 7.4%. However, due to the drop in prices, the value of Indonesia’s coal exports for the same period plummeted by 24.2%, totaling $10.18 billion.
Josua Pardede, Chief Economist at Permata Bank, commented that the export value of commodities like coal and palm oil is greatly influenced by international price fluctuations. When the selling prices of such commodities fall in the global market, Indonesia’s export performance is similarly affected and declines.
When coal prices plunge, the country’s income from export activities decreases.
If coal prices continue to weaken, Indonesia’s exports will also suffer. This situation can result in a reduced trade surplus, leading to a persistent deficit in the current account. The weakening of exports could also impact the exchange rate stability, as lower exports indicate a reducing supply of US dollars in Indonesia’s financial market. This condition leaves Indonesia vulnerable to upheaval in the event of global economic shocks.
