China’s coal importers are resisting attempts by Indonesian exporters to include waiver clauses in the new supply contracts to free them from strict delivery volumes if the Indonesian government decides to restrict export or output quotas again, sources familiar with the negotiations have told Bloomberg.

Indonesia, which is the world’s biggest exporter of thermal coal, has changed its production and export policies several times this year, stifling international shipments and forcing China, the world’s top coal consumer, to tweak import flows and domestic production.

Indonesia’s thermal coal exports have been crimped by government production quotas and heightened uncertainties about Indonesia’s policy in the coal mining and exporting sectors. The Indonesian government slashed quotas for coal miners, while the strong El Niño has reduced rainfall and lowered river water levels, disrupting coal barge movements to export ports in recent weeks.

Now the Indonesian exporters want to reportedly include waiver clauses in the new contracts with China’s buyers. These waiver clauses would mean that exporters would not be obliged to deliver the volumes as contracted if the Indonesian government intervenes again with a reduction of production or export quotas, or delays export approvals.

The Chinese buyers aren’t having it and are reluctant to accept such clauses, according to Bloomberg’s sources.

China’s imports of coal fell in September by 6% from a year earlier, as Chinese inventories remained robust, supply from key exporter Indonesia remained restricted, and import prices jumped.

The decline extended into October, during which Chinese coal imports also dropped by 6% from a year earlier.

“Chinese buyers appear reluctant to aggressively restock at current elevated price levels, given comfortable inventory positions and expectations for improving domestic supply,” Jenny Huang, a senior director at Fitch Ratings, told Reuters.

In a report last month, Fitch Ratings said that thermal coal prices in Asia are expected to stay elevated in the coming months as demand is strengthening in the ongoing gas-to-coal switch, while supply from China and Indonesia is falling. As a result of lower Chinese output, highly uncertain Indonesian export volumes amid policy changes, and strong demand for coal in Japan and South Korea, thermal coal prices are set to remain elevated in the near term, Fitch Ratings said.

Source: Oilprice