Coal Mining Update: Indonesia's Reference Coal Price Hits New Low

Suhala said reduced demand from China - the world's second-largest economy - has a major impact on the coal price. In the January-November 2015 period, coal imports into China fell over 30 percent from the same period last year. As a result of the low price, Indonesian coal miners have cut production volumes by about 20 percent in 2015. Considering that total coal production in Indonesia is estimated at around 425 million tons in 2015, this would imply that the country's coal miners have cut the nation's total production volume by about 85 million tons. This decline in output is partly necessary as these miners have to avert bankruptcy (as the production cost margin turned negative) but it is also a strategy to boost prices.

However, Suhala warned that if Indonesian coal miners cut production volumes too much, then there looms the danger that their markets are taken over by other coal miners.

The government's average reference coal price was USD $60.13 per ton in full-year 2015, down 17.2 percent (y/y) from USD $72.62 per ton in 2014, and almost halved from USD $118.4 per ton in 2011. However, Suhala criticized the government's reference HBA price and said the formula to determine the price should be revised. Currently, the HBA is determined by taking the average of the following four prices: Indonesia Coal Index (ICI), Index Platt59, New Castle Global Coal, and the New Castle Export Index. Each have an equal contribution (25 percent) to the reference price. However, as domestic coal demand in Indonesia is estimated to increase in 2016, the ICI should not account for a mere 25 percent of the reference HBA price but obtain a higher portion.

However, Indonesia's Ministry of Energy and Mineral Resources already announced it will revise the formula to determine the HBA. The Index Platt59 will not be used anymore as this index does not include low calorific coal (while Indonesia is the world's largest low-calorific coal producer). Furthermore, the ICI will determine 50 percent of the HBA, while the New Castle Global Coal, and the New Castle Export Index will each contribute 25 percent to the HBA.

The outlook for Indonesia's coal mining industry in 2016 is more positive than this year as domestic coal demand is expected to rise due to the start of operations of new power plants. Also in other countries (the Philippines, Malaysia and India) new coal-fired power plants will commence operations next year.

Indonesian Government's Benchmark Thermal Coal Price (HBA):

Month	2012	2013	2014	2015
January	109.29	87.55	81.90	63.84
February	111.58	88.35	80.44	62.92
March	112.87	90.09	77.01	67.76
April	105.61	88.56	74.81	64.48
May	102.12	85.33	73.60	61.08
June	96.65	84.87	73.64	59.59
July	87.56	81.69	72.45	59.16
August	84.65	76.70	70.29	59.14
September	86.21	76.89	69.69	58.21
October	86.04	76.61	67.26	57.39
November	81.44	78.13	65.70	54.43
December	81.75	80.31	69.23	53.51

^{in USD/ton
Source: Ministry of Energy and Mineral Resources}

Indonesian Production, Export, Consumption & Price of Coal:

	2007	2008	2009	2010	2011	2012	2013	2014	2015¹
Production (in million tons)	217	240	254	275	353	412	474	458	425
Export (in million tons)	163	191	198	210	287	345	402	382
Domestic (in million tons)	61	49	56	65	66	67	72	76
Price (HBA) (in USD/ton)	n.a	n.a	70.7	91.7	118.4	95.5	82.9	72.6	60.1

^{¹ indicates forecast
Source: Indonesian Coal Mining Association (APBI)}

Further Reading:

• Overview & Analysis of Indonesia's Coal Industry

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