Indonesian Coal Miners Maintain Sales Price Guideline

A number of coal companies in Indonesia are optimistic that the price of the ‘black gold’ will gradually increase to a higher range after the Coronavirus 19 (COVID-19) pandemic ends. In fact, they still maintain the coal Average Selling Price (ASP) guideline for this year.

Corporate Secretary of coal major company PT Bukit Asam Tbk Hadis Surya said that although the company’s coal ASP in the first quarter of this year decreased by 3-5%, the company was still confident with the ASP guideline set for this year. Bukit Asam is still optimistic that coal prices will move better after the Covid-19 outbreak has passed. According to the Hadis, one of the indications can be seen from the increasing demand for coal from China.

“Until now there has been no revision of the company’s coal selling price projection, but an analysis of the possibilities that will occur in the future will always be done”, said Hadis.

Meanwhile, Director and Corporate Secretary of PT Bumi Resources Tbk, Dileep Srivastava also said that he would not yet revise the ASP coal guideline this year. The company’s coal ASP this year is in the range of USD 51-USD 53 per metric ton (MT) with an estimated sales volume of around 22 million tons (MnT), which is the highest level in history.

“Our sales and output are quite strong at the moment and global coal prices are still quite holding at a safe level. So there is no change in ASP guideline”, said Dileep.

On the other hand, PT Adaro Energy Tbk. also committed to maintaining solid performance amid fluctuations in coal prices this year. Adaro will continue to carry out exploration activities as planned at the company’s mine. Adaro Energy’s head of corporate communication division Febriati Nadira said that the company seeks to maintain solid performance through our integrated business model so that it helps the company not depend on coal price fluctuations.

“We will continue to focus on efforts to improve operational excellence, control costs and efficiency, and execute strategies for business continuity”, Febriati said.

Despite fluctuating movements throughout the year 2020, coal prices have managed to move relatively stable compared to other energy commodities amid the Covid-19 pandemic sentiment. Capital Futures analyst Wahyu Laksono said that so far all commodities ranging from copper to coal experienced a weakening trend due to the spread of Covid-19 sentiment which weakened demand. However, coal managed to move quite stable and did not fall deep enough among other energy commodities. He saw the demand for coal able to survive did not decrease significantly despite the sentiment spread Covid-19.

Throughout the year 2020, Newcastle coal prices for the most active contracts on the ICE exchange fell 9.4%. When compared with other energy commodities, WTI type oil has been corrected by 63.1% and the price of natural gas on the Nymex exchange has been corrected by 20.72 % year-to-date. Thus, the performance of coal does not seem as severe as the energy commodity market has expected. Wahyu also assessed that coal prices are still able to survive in a price range that is still at a reasonable level.

At the close of trading on Thursday (9/4/2020), the coal price of the April 2020 contract or the most active contract on the ICE exchange parked at the level of USD 63.6/MT, rising 1.52%. However, that level became the lowest level of coal since June 2017.

“The price is still in the range of USD 60/MT which is the annual acquisition price since coal has managed to rebound from its downturn in 2016. The current coal price is still very reasonable, not severe”, Wahyu said.

Meanwhile, the widespread spread of Covid-19 in many countries outside China has triggered lockdowns in several countries, including large coal producing countries such as China and South Africa. As a result, production is stuck and limits the supply that will enter the market. The supply pressure is considered successful in offsetting the prospect of weak demand in line with the projected decline in global economic growth due to Covid-19 sentiment.

In addition, major coal importers such as China, Japan, South Korea and Taiwan have successfully overcome the Covid-19 outbreak so that the prospect of demand is believed not to be hit hard enough and will help prices to move more stable.

Citing estimates from the Swiss UBS Bank, China’s coal consumption has now returned around 94% from its position last year. Meanwhile, according to the China Coal Transportation and Distribution Association, the use of coal by power plants from China’s five main utilities reached 488,800 tons in the last week of March 2020, more than double the lowest level on February 10.

Huatai Futures analyst Wang Miao said that China had burned more coal after the local government imposed social restrictions to prevent the spread of Covid-19. The burning activity is another signal that the first country hit by the Covid-19 outbreak will soon return to normal levels.

“If coal burning data can hold above current levels and continue to increase, then it shows China is starting to return to normal and helps coal prices which are in a weakening trend”, Wang Miao said as quoted by Bloomberg on Sunday April 12.

Meanwhile, on a weekly basis, Wahyu projected coal to move in the range of USD 63-USD 70/MT, while for the medium term the price of coal moves in the range of USD 60-USD 75/MT.

PRICE ASSESSMENTS

N.B.: All prices are on FOB Kalimantan basis and in USD/MT.