Indonesia coal producers search wayouts to offset falling China, India coal imports

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JAKARTA (rambuenergy.com) – Indonesia’s major coal producers are trying to find wayouts on how to offset falling coal imports trend from China and India, two countries that have driven the world coal trades in the past decades.

The U.S. Energy Information and Administration (EIA) issued a report late 2015 that global trade of coal reversed trend in 2014 and 2015 after recorded a dramatic rise from 2008 to 2013.

China and India accounted for 98 percent of the increase in world coal trade from 2008 to 2013, but declines in China’s import demand have led to declines in total world coal trade in 2014 and, based on preliminary data, in 2015 as well.

EIA said nearly all of the 47 percent growth in total world coal trade between 2008 and 2013 was driven by rising coal import demands by countries in Asia, specifically China and India. Coal trade in the rest of the world declined over the same period.

China imported 341 million short tons of coal in 2013, up from 45 million short tons in 2008, while India imported 203 million short tons, up from 69 million short tons. About 75 percent of China’s coal imports and 90 percent of India’s coal imports were steam coal, used primarily for electricity generation. Coking coal, used in the manufacture of steel, made up the remaining volumes.

While China’s coal imports have been declining in 2014 and 2015, India’s imports continued to rise in 2014 and through the first half of 2015 as coal demand increased at a faster pace than domestic supplies. In China, rising output from domestic mines, improvements in coal transportation infrastructure, and slower growth in domestic coal demand have resulted in lower domestic coal prices and reduced demand for coal imports.

This global coal trade has caused headache to Indonesia’s major coal producers as reflected a decline in their topline (sales) and bottomline (net profit), with some recorded losses. Falling demand for coal from China has also resulted in a decline in coal production in the past two years.

This trend has triggered local companies to adjust or change their strategies, including entering power industry. Some major local producers such as PT Adaro Energy Tbk, PT Tambang Batubara Bukit Asam Tbk (PTBA), Sinarmas group coal unit PT Golden Energy Mines Tbk, are among companies that have entered the power sector.

Apart from supplying coal to independent coal producers (IPPs), they are also planning to supply coal to their owned coal-fired power plants.

As a sign of hope, seventeen major coal producers set higher coal production for 2016, as revealed by the Energy and Mineral Resources Ministry (ESDM) this week. Last year, realized national coal production was below target.

Based on these company’s work plan and budget (WP &B) for 2016 submitted to the Energy and Mineral Resources  Ministry (ESDM), as many as 17 large coal producers set the same or higher than last year coal production.

The 17 companies set total production target of 274.05 million tons, higher compared to their last year’s production of 198.62 million tons.

“Although this year’s coal price is projected to remain weak, they remain confident in raising their production target,” said Director for Coal Business at the Energy and Mineral Resources Ministry Adhi Wibowo.

Adhi Wibowo was quoted by Bisnis Indonesia as saying that emand for coal from domestic market continues to improve, in particular from power plant producers. This could drive up Indonesia’s Coal Reference (HBA) price, which stood at US$53.2 per ton in January this year.

The Indonesian government sets domestic market obligation (DMO), a mandatory supply to domestic market, at 87.43 million tons in 2015, up 14.77 percent compared to 2014 at 76.18 million tons. Coal exports reached 295.45 million tons, or fell 22.65 percent compared to 381.97 million tons in 2014.

As for 2016, PLN requires coal under DMO scheme to 81 million tons, 14.73 percent higher than realized coal supply under DMO scheme of 70.6 million tons. The coal supply under DMO scheme were absorbed by PLN’s owned power plants as well as those operated and owned by independent power plants (IPPs).

Domestic coal producers see glimmer of hope of higher coal production, however, it may take time for coal price to rebound as world crude oil price is still hovering at around US$30 per barrel, the lowest in the last more than one decade.

Indonesia coal price (HBA) has been trending down from US$63.84 per ton in January 2015 to US$53.2 per ton in January 2016.

Following coal production targets of Indonesia’s coal producers for 2016:

No	Company Name	Planned 2016(million tons)	Target 2015(million tons)	Actual 2015(million tons)
1.	PT Kaltim Prima Coal	62.03	58	56.9
2.	PT Adaro Indonesia	52.5	54	52.94
3.	Arutmin Indonesia	32.22	26.59	2535
4.	PT Kideco Jaya Agung	32	41	39
5.	PT Berau Coal	26.55	27	26.55
6.	PT Indominco Mandiri	13.0	14.49	10.01
7.	PT Bukit Asam	10.33	6.11	5.61
8.	PT Antang Gunung Meratus	7.10	7.0	6.86
9.	PT Borneo Indobara	6.3	6	6
10.	PT Trubaindo Coal Mining	6	7.49	5.37
11.	PT Mandiri Inti Perkasa	5.09	4.25	5
12.	PT Insani Bara Perkasa	4.49	4.35	2.21
13.	PT Mahakam Sumber Jaya	3.5	3.6	3.6
14.	PT Lanna Harita Indonesia	3.5	3.5	3.08
15.	PT Multi Harapan Utama	3.29	2.81	2.57
16.	PT Pesona Khatulistiwa Nusanatara	3.12	3.7	2.24
17.	PT Asmin Bara Bronang	3	2.94	2.97

Source: Bisnis Indonesia, ESDM