News Focus – Coal price decline contributes to Indonesias CAD

Jakarta, (ANTARA News) - The decline in the prices of coal in the world market is also believed to contribute to the widening of the countrys current account deficit (CAD) in the third quarter of 2018.

The price of coal has been declining over the past three months this year and is currently set at US$94.90 per ton. It declined from $100.89 and $104.81 per ton in October and September, respectively, and $107.83 per ton in August.

According to Minister of Trade Enggartiasto Lukita, coal was one of the commodities that affected the decline in export performance in August 2018 against July 2018.

"Exports are declining compared to last month, which is caused as we stopped coal trade. We have asked traders to stop coal exports. Now, we allow them to export it again," Lukita stated, after attending the Synchronization of Consumer Protection Policy event in Jakarta, on Monday (Sept 9).

The Minister of Trade explained that the trade balance deficit of $8.8 billion in August 2018 was also influenced by the sale of coal, which was prioritized for domestic market only, and was carried out based on the policy of domestic market obligation.

Despite the decline of coal prices in the world market, Indonesias third quarter current account deficit of $8.8 billion or 3.37 percent of the national gross domestic product was also due to rising oil imports that weakened the performance of oil and gas trade balance.

"The rising deficit in oil and gas trade balance resulted from increasing oil imports amid global crude price hike," Bank Indonesia (BI) noted in its official statement on the performance of current account in the third quarter of 2018 released on Friday (Nov 9).

The current account, which consists of trade and service balance, serves as a parameter to record payment transactions between Indonesian population and non-Indonesian population.

According to Finance Minister Sri Mulyani Indrawati, one of the causes of the high CAD in third quarter of 2018 was the increasing demand for imported goods. "On the one hand, we are pleased that our economic growth is high, but consequently, the demand for imported goods has also increased," Sri Mulyani remarked in Jakarta on Friday (Nov 9).

The minister stressed that the government will continue to monitor and review the current account deficit movement to remain under control of under 3 percent of GDP.

Besides that, the government should also boost coal exports in order to help narrow the CAD. Moreover, Indonesia has large coal reserves of some 9 billion tons, or some 1.2 percent of the worlds total deposits. Although its price on the world market is going down, now is the time to boost its exports.

It is because now the worlds demand for coal is on the rise. The high demand for coal in the world market is in line with the onset of the winter season in mainland China. China needs adequate coal supply to generate six power plants in the face of its temperature falling below zero Celsius degrees.

"The price of coal is good at this time, and so we recommend that this moment be used to increase the volume of exports," Rendra Prasetya Kiswono of the Coordination Function Analysis and Policy Commission of BI for South Sumatra stated at a capacity building training for South Sumatras economic reporters organized by BI in Solo, Central Java, this week.

Even though the price of coal has been declining over the past three months this year, yet it is still relatively high and can be considered to be in upward trend if compared with its prices in the 2012-2015 period.

Coal business happened to be sluggish in the 2012-2015 period because coal prices in the world market fell sharply, but it has begun to crawl up since early 2017. The price now is about $97.90 per ton, which is far higher compared to that in December 2015, which stood at $53.51 per ton.

The relatively high price of coal this year drove up the high increase in demand for this commodity, especially in Asia. This is regardless of the fact that coal was feared to not be popular anymore, considering its non-environmentally friendly nature.

One other interesting thing is that four major importers in China have increased their demand for coal simultaneously this year. This had not occurred in previous years.

China imported 104.5 million tons of coal in the January-May 2018 period. This number increased 10.2 percent from the same period in 2017. Meanwhile, India, the second largest importer after the Panda Country, imported 77.4 million tons in the first five months of this year, or up 3.3 percent on an annual basis.

Source: ANTARA News

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