China’s economy grew 6.6 percent last year, the lowest in the past 28 years due to pressure from a trade war with the US. This situation also affected Indonesia’s economy, making its trade balance deficit reached US$ 1.1 billion last year, the worst level in history.
The weakening of the Chinese economy is estimated to continue this year, and also have a negative impact on Indonesia’s non-oil and gas export performance. This is because China is the largest non-oil and gas export destination country for Indonesia for many years. In January-December 2018, the export value to China was US$ 24,392.7 million, which constituted 15 percent of Indonesia’s total exports.
The value of Indonesia’s non-oil and gas exports to China in 2018 did grow 14.25 percent compared to the previous year, but the value of non-oil and gas imports from China also grew 27.41 percent to US$ 45.24 billion. As a consequence, Indonesia’s non-oil and gas trade deficit with China soared 47.24 percent to US$ 20.85 billion.
The decline in export demand from China has been predicted since the beginning of the US-China trade war. “Basically, the slowdown is due to China’s compulsion to slow the pace of exports to the US, which is its biggest trading partner,” Deputy Chairman of international relations at the Indonesian Chamber of Commerce and Industry Shinta Kamdani said when contacted on Monday (1/28).
In 2019, the weakening of China’s economy is likely to continue. In a survey on 85 world’s economists, Reuters stated there will be a slowdown in economic growth in that country to 6.3 percent. Based on a report from the World Bank, the pace of China’s economy this year will drop 0.1 basis points from 2018. “China’s economic growth is projected to slow to 6.2 percent this year, below the previous projection due to weak exports,” the World Bank wrote.
The decline in export demand from China is estimated to have a direct impact on falling commodity prices. Bank Indonesia (BI) predicts global commodity prices will decline. “Indonesia’s export commodity prices, which recorded a sluggish growth in 2018, are expected to continue in 2019,” BI wrote in the January 2019 edition of the Monetary Policy Review.
So far, coal and crude palm oil (CPO) are Indonesia’s main export commodities. As long as the US-China trade war still continues, demand from China will remain slow and affect prices. “This means Indonesia’s competition with other suppliers to China is getting tighter,” she said.
Coal Prices Weaken Further
In 2018, coal exports rose. From January to December 2018, non-oil and gas exports in the form of mining and other products reached US$ 29.28 billion, rising 20.47 percent supported by an increase in coal exports. Export value from East Kalimantan, as the origin of coal shipping abroad, was recorded at US$ 18.56 billion.
Based on data from the Ministry of Energy and Mineral Resources, total coal production reached 528 million metric tons in 2018, with total exports of 78.2 percent (413 million metric tons). It was 461 million metric tons in 2017, with total exports of 78.9 percent (364 million metric tons).
The energy coal price reached US$ 115.45 per metric ton on 3 October, the highest level throughout 2018. Meanwhile, the lowest price of coal was US$ 84.35 per metric ton on 26 March 2018. Coal reference price (HBA) has also been declining since mid 2018. The value of coal reference price was US$ 107.83 per ton in August 2018, which then dropped to US$ 100.89 per ton in October. It fell to US$ 97.90 per ton in November and US$ 92.51 per ton in December. In January 2019, the value fell slightly to US$ 92.41 per ton.
Asia Tradepoint Futures Analyst Deddy Yusuf Siregar estimates the coal prices will be in the range of US$ 90-US$ 100 per metric ton in 2019. According to him, coal prices are influenced by China, which has put a halt to coal use since last year and is about to implement clean energy policy.
However, Deddy said China’s move to change its policy would not run in a short time. “Although power plants in China will later switch to natural gas, exploration and funding are still required,” he said when contacted recently.
Although demand from China has decreased, Deddy said coal demand is likely to continue to grow from Southeast Asia, such as Vietnam. This country still needs large amounts of coal for steam power plants (PLTU), which are estimated to reach 80 million metric tons by 2030.
In this year’s issue of Monetary Policy Review, BI also stated that the decline in coal and metal commodity prices will continue. Apart from being affected by falling demand from China, the decline is also caused by slowing global demand and increasing coal supply from the US.
Reporter: Michael Reily