Demand for Indonesia exports has cooled but the bigger impact has been from a price perspective, particularly for Indonesia’s thermal coal exports. Commodities, as a share of Indonesian exports have been trending higher for quite sometime and coal has been a major driver of this story. Unfortunately for Indonesia, thermal coal prices have come under pressure from two fronts – firstly the weaker global backdrop and secondly, rising US coal exports, as natural gas replaces coal in domestic US energy use.
“Our forecast profile suggests thermal coal prices should rise as we move into 2013, though it is unlikely to be a dramatic recovery. Hence while the demand environment may improve, Indonesia’s trade performance may lag the rest of the region.” Cavenaugh writes.