Indonesia will exceed its coal production target for another year as miners cash in after prices recovered from a five-year collapse.
The world’s biggest exporter will produce about 489 million metric tons this year, 18 percent above the government-mandated target, according to energy ministry forecasts. That’s up from last year’s output estimated at 434 million tons and would be at least the third year in a row that the nation has produced more than it planned.
Southeast Asia’s largest economy has been trying to cap its coal output in an attempt to preserve resources for future generations of Indonesians. That’s proving a challenge as resurgent prices tempt producers to maximize output from new and existing mines to meet demand at home and abroad.
“Actual annual production will generally be higher than targeted because prices are now higher,” Bambang Gatot Ariyono, the director general of coal and mineral resources at the energy and mineral resources ministry, said Jan. 5. “It compensates for previous losses.”
Coal more than doubled in 2016 after tumbling to the lowest in almost a decade as efforts by China to reduce excess supply pushed prices higher and faster than anyone anticipated. The recovery is breathing new life into an industry hammered by overcapacity and shrinking demand, reviving share prices of miners around the world, from Indonesia’s PT Bumi Resources to Australia’s Whitehaven Coal Ltd.
A gauge of Indonesian mining companies surged more than 70 percent in 2016, dwarfing the 15 percent advance in the Jakarta Composite index. The gauge slumped 41 percent in 2015, its worst year since 2008.
Bumi Resources, Indonesia’s biggest coal producer, expects to mine more than 90 million tons this year, compared with 86 million tons in 2016, corporate secretary Dileep Srivastava said in an e-mail. PT Adaro Energy, operator of the country’s largest mine, didn’t provide estimates for 2017 but the company said in e-mail that it “will continue to maintain production discipline and improve efficiency to grow the company sustainably in the long term.”
Shares of Bumi Resources added 4.9 percent to close at 388 rupiah on Friday, while PT Indo Tambangraya Megah’s stock rose 0.5 percent to 15,925 rupiah. Adaro Energy slid 0.9 percent to 1,700 rupiah.
The government isn’t willing to force companies to curtail output from newly constructed mines after granting them production licenses, according Ariyono from the energy ministry. “We can’t tell them to stop,” he said.
A growing share of Indonesia’s output is remaining in the country, with 25 percent of supply this year forecast to be consumed domestically, up from 21 percent in 2016 and 19 percent in 2015, according to energy ministry estimates. The government sees local demand at 121 million tons this year, up from an estimated 91 million tons in 2016, according to the data.
Still, Indonesia exports most of what it mines, with China, India, South Korea, and Japan among its biggest customers. With international prices now showing signs of peaking, Indonesia isn’t being complacent about the longevity of the rally, according to the country’s coal mining association.
“Producers view that current high prices can’t be used as future reference,” said Hendra Sinadia, deputy executive director of the Indonesian Coal Mining Association.
Thermal coal in Indonesia climbed for a seventh month to $101.69 a metric ton in December, the highest since 2012 and the longest run of gains in data compiled by Bloomberg since 2009. Australia’s Newcastle coal more than doubled last year to almost $110 a ton in November, before slipping to about $84 this month.
China, which produces and consumes more than any other country on the planet, has worked overtime to cool the market, reversing some output restrictions and encouraging more production before winter. The nation’s output rose in November to the highest level in a year, according to the National Bureau of Statistics.
“China will re-balance between cutting production and meeting domestic demand,” Sinadia said. “They are doing this right now.”
Indonesia’s miners are also trying to wean themselves off China, with exports shrinking over the past three years. The nation accounted for almost 20 percent of Indonesia’s total overseas shipments in 2015, down from almost 31 percent in 2013, according to data from the state statistics agency. Over the same period, India’s coal purchases rose to 34 percent of Indonesia’s exports, from 28 percent in 2013, the data show.
“When Bumi realized that China growth was showing signs of a slow down three to four years ago we proactively diversified into other markets such as India and developed a few new ones like Philippines,” Bumi Resources’s Srivastava said. “We prefer not to be overly exposed in any single market but to have a diversified market exposure.”
Indonesia’s exports to China may fall again in 2017 as rising domestic output erodes its appetite for imports, according to Michelle Leung, a Hong Kong-based analyst at Bloomberg Intelligence.
“Exports will depend on the level of demand in the seaborne market,” said Rory Simington, principal coal analyst at Wood Mackenzie Ltd. “Indonesian producers have the flexibility to satisfy demand from China, India and rest of the seaborne market, provided the price is right.”
Source: BloombergPrevious Next