Indonesian industry executives say that Indian buyers have reduced shipments from the top thermal coal exporter and are looking to renegotiate contracts owing to the sharp fall in the rupee.
Indian buyers have reduced shipments from top thermal coal exporter Indonesia and are seeking to renegotiate contracts as a sharply lower rupee has driven up their import costs, Indonesian industry executives said on Tuesday.
The fall in purchases from India is forcing Indonesian suppliers to seek other buyers or dump cargoes into the spot market, putting more pressure on international benchmark prices that are already near their lowest in four years.
India buys about a fifth of Indonesia's exports of coal, which is traded internationally in US dollars. Southeast Asia's biggest economy aims to ship about 317 million tonnes of its expected output of around 400 million tonnes this year, according to government and industry sources.
Several Indonesian companies have scrambled to find new buyers on the spot market after deals with Indian buyers fell through, the Indonesian Coal Mining Association (ICMA) said.
"Some buyers have cancelled contracts or sought to renegotiate contracts, because now it's actually cheaper for them than fulfilling their obligations," ICMA commercial committee chairman Pandu Sjahrir told Reuters.
"Sellers have been dumping into the market. They have to choose - should I take (buyers) to court or renegotiate with them or just sell it in the spot market?"
The ICMA official did not give the volumes impacted by the Indian buyers' moves and those could not be immediately ascertained by Reuters.
The rupee has lost 18 percent against the dollar since May and the country is going through its worst economic slump in 20 years. Energy imports are among the top contributors to India's growing current account deficit.
India's power producers depend on coal imports to supply more than half of the country's domestic power needs.
The slide in Indian imports could help to narrow the gap between Indonesian coal prices and other regional coal indexes which have fallen faster under the weight of a global oversupply situation.
LISTED FIRMS IMPACTED
Sjahrir said several of the firms affected were publicly listed companies, declining to name them because of the sensitivity of the matter.
Indonesia's publicly listed coal companies export between 2 million and 7 million tonnes of coal a year each, he said, adding that the increase in spot market supply had weakened prices for the past two-three weeks.
Listed Indonesian coal mining companies that export coal to India include Bumi Resources , Adaro Energy , Indo Tambangraya Megah (Banpu Indonesia) and state-owned Bukit Asam .
Indonesia ships around USD 2 billion worth of coal a month, one of its largest exports by value. A drop in exports would exacerbate Indonesia's own current account deficit, which is already a concern for investors as it fights a weakening rupiah, rising inflation and the exit of foreign capital.
"Deals are still being done," said Ben Lawson, chief development officer at Indonesian coal producer Apple Coal, referring to Indian purchases of Indonesian coal. "(But) many contracts are being renegotiated or delayed."
INDIA'S POWER SHORTAGES
The changing value of the rupee meant Indian buyers would now be forced to import lower quality coal from Indonesia than they were buying before, said Singapore-based Zenny Tran, coal team leader at Ginga Petroleum.
A fall in imports for India could exacerbate the country's power shortages.
"It is unlikely that Indian power companies can continue to pay for Indonesian coal at today's prices without causing themselves serious financial harm," said Roleva Energy coal analyst Bart Lucarelli.
"Power shortages are a way of life in India and I think we will see more of them over the next year."
Last year, 670 million people in the northern, eastern and northwestern parts of the country had no power for two days, the biggest outage in the world, as a few states drew excess power from the national grid causing it to snap.
China's appetite for Indonesian coal has also subsided as domestic producers slash prices to gain market share. China's spot coal prices are down 14 percent this year and 9.3 percent since June, hitting a four-year low of 546 yuan per tonne last week.
Indonesian coal exporters have seen revenues plummet with international prices, and asked the government on Monday to help them by delaying plans to hike royalty and tax on coal output.
The Indian rupee rose to a two-week high at 64.15 in early trade, versus its Friday close of 65.24/25. The rupiah dropped almost 3 percent on Tuesday, hitting a near four-and-a-half-year low with spot indicative rupiah reaching 11,490 per dollar, its lowest since April 2009.