A number of Indonesian coal producers have announced tentative plans to raise output in the coming year despite the fact that regulatory obstacles and an uncertain Chinese import policy bemoans the growth in country’s coal industry.
Indonesia has exported 356.5 MnT of all types of coal in Jan-Oct’18, up by 35.5 MnT from a year earlier, as per the data provided by BPS. This could theoretically put exports at an annualised rate of around 427.8 MnT for CY18.
Although the actual export level is likely to remain below the projected figure primarily as a consequence of Chinese government decision to tighten enforcement of its import quotas. Still, Indonesian coal exports in CY18 are expected to exceed the level of CY17, when the country had exported 389.47 MnT.
The government had raised the production target to 507 MnT for CY18, however the Indonesian coal mining association does not expect the industry to reach this target, given the big drop in prices from Nov’18, and is expecting coal output to fall slightly in CY19 from CY18 to 480-500 MnT.
Production plans for CY19
Some of Indonesia’s biggest producers such as Bumi Resources, Bukit Asam, Geo Energy, Delta Dunia and Harum Energy are looking to raise output in 2019 amid anticipated increased demand from India as well as new emerging markets such as Vietnam, Thailand and Cambodia.
>> Indonesia’s largest coal mining firm, Bumi Resources, has said it aims to boost its production in 2019 to 90 MnT, subject to approval from the Energy and Mining Ministry (ESDM), from an expected 83 MnT in 2018. The firm produced 62.6 MnT coal in Jan-Sep’18.
>> State-owned producer Bukit Asam has said it is aiming to raise its production by 7-8% in 2019 to meet strong domestic power generation demand and on expectations of increased interest from Japan, Taiwan and the Philippines in its high-calorific value (CV) coal. The firm, which produced 19.7 MnT in Jan-Sep’18, says it is on track to achieve its 25.54 MnT target for 2018.
>> Bukit Asam is focusing on boosting output of high-quality 6,100 kcal/kg and 6,400 kcal/kg GAR coal from around 900,000 MT in 2018 to 3 MnT in 2019 to take advantage of the higher prices these grades command in the premium seaborne markets of Japan, Taiwan and the Philippines.
>> Geo Energy, which was earlier targeting 11-12 MnT of coal output in 2018, will end up producing 7.5MnT, down slightly from 7.7 MnT in 2017, largely because of China’s imports curbs, the company said. Chinese buyers take up 90-95% of Geo Energy’s production. The company is targeting 14 MnT of coal production in 2019, as it expects to take advantage of China lifting its imports curbs post the lunar new year from February 2019.
>> Delta Dunia produced 4.6 MnT of coal in Oct’18, taking total output for Jan-Oct’18 to 34.9 MnT from 33.9 MnT during the same 10 months in 2017. The company now expects to achieve output of 5 MnT/month during Nov-Dec’18 period to hit the lower end of its 45-50 MnT production target.
>> Harum Energy aims to produce 5-5.5MnT of coal in 2019, an increase of at least 8.7% on the company’s expected 2018 output of 4.6 MnT, in a bid to offset the effects of lower coal prices on company revenues. In particular, Harum aims to develop sales in emerging markets in Asia, such as Vietnam, the Philippines and Bangladesh. The largest foreign markets that Harum Energy currently supplies to are South Korea, Malaysia and China, which made up 34%, 25% and 19%, respectively, of the company’s orders in Jan-Sep’18.
Apart from the above firms planning to raise their output targets, some Indonesian producers are positioning themselves more defensively and starting to consider reducing output. Others plan to keep output stable in 2019 given lower prices and uncertainty around China’s buying.
>> Indonesian mining firm Kideco plans to keep production flat in 2019 at around 34 MnT from 2018.
>> Indonesian coal mining company Adaro Energy has set a production target of 54-56 MnT for 2019, it said in its work plan and budget submitted to the ESDM. Adaro will keep its 2019 production targets unchanged year on year amid uncertainty over Chinese import demand in the near term.
Factors Affecting Output Growth
Despite plans to raise output by some firms, regulatory obstacles in Indonesia are likely to hamper coal production in 2019.
The biggest potential sticking points are uncertainty surrounding mining licences and some companies’ struggle to meet their DMOs.
Legacy mining licences will begin to lapse in 2019 and the process for extending or converting these remains unclear. This might force firms to freeze output expansion plans while they await clarification.
Another factor that could limit production is the DMO requirement for producers to sell 25% of their coal production on the domestic market. Firms that fail to meet this requirement are prohibited from increasing output and face having their output limited to four times their domestic sales volume.
Some mining companies, especially the smaller ones, have struggled to sell their coal domestically because they do not produce the required specifications. It is to be noted that domestic power producers require coal in a 4,200-5,000 kcal/kg GAR range.
The aforementioned factors are expected to add to the vows of coal producers as they try to second-guess on the possible stance of Indonesian government on DMO targets as well as the unpredictable Chinese demand.
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