While many analysts have spoken or written about the demise of coal as a key source for energy generation, rebounding coal prices in 2016 have taken markets by surprise. Thermal coal (both physical and futures) prices soared between 50 and 80 percent since the start of the year. This rally might continue into the first quarter of 2017.

What Causes the Coal Price Rally?

To answer this question we have to look at the supply and demand mechanism. Supplies in key coal producing countries have declined. Indonesia is one of these key countries. According to the BP Statistical Review of World Energy 2016, Indonesia's coal production fell 14.4 percent (y/y) to 241.1 Mtoe (million tons of oil equivalent) in 2015 from 281.7 Mtoe in the preceding year. This was the first time that BP saw Indonesia's coal output declining on a year-on-year basis. This decline is attributed to a fall in global coal demand in preceding years, particularly in China, that caused financial troubles for local miners that therefore reduced - or completely shut down - their operations in 2015 and 2016.

Meanwhile, Indonesia's coal consumption rose 15 percent (y/y) to 80.3 Mtoe in 2015, from 69.8 Mtoe in the preceding year (Indonesia is now the world's 8th largest coal consumer). Rising consumption is fueled by the government's ambitious program to expand the nation's power capacity to 35,000 MW by 2019. The majority of new power plants are coal-fired, a logical option given that Indonesia has abundant coal supplies and prices are still low. Coal already is the biggest source for power generation. According to BP coal contributes 41.4 percent to Indonesia's total energy consumption, followed by oil (37.6 percent of the total).

Not only in Indonesia but also in Europe and Asia coal demand is growing. The recent price rally is specifically attributed to rising demand from China, the world's largest energy consumer. Although China's coal demand had fallen in recent years, there has been a surge of coal imports into China in recent months as local authorities capped domestic coal mining output (to comply with the Paris Climate Agreement) and therefore turned to imports again.

Besides authorities' encouragement to curtail coal production (a strategy to boost global coal prices and safeguard future supplies), coal production in Indonesia and Australia have also declined this year due to a prolonged wet season in the key coal producing regions.

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

Month    2012    2013    2014    2015
   2016
January   109.29    87.55    81.90    63.84    53.20
February   111.58    88.35    80.44    62.92    50.92
March   112.87    90.09    77.01    67.76    51.62
April   105.61    88.56    74.81    64.48    52.32
May   102.12    85.33    73.60    61.08    51.20
June    96.65    84.87    73.64    59.59    51.87
July    87.56    81.69    72.45    59.16    53.00
August    84.65    76.70    70.29    59.14    58.37
September    86.21    76.89    69.69    58.21    63.93
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 2015
Production
(in million tons)
 217  240  254  275  353  412  474  458  461
Export
(in million tons)
 163  191  198  210  287  345  402  382  366
Domestic
(in million tons)
  61   49   56   65   66   67   72   76   87
Price (HBA)
(in USD/ton)
  n.a   n.a  70.7  91.7 118.4  95.5  82.9  72.6  60.1

Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources

However, coal remains the second-most attractive fuel (after crude oil), worldwide, for power generation. Especially in emerging markets authorities are developing coal-fired power plants, including Indonesia, to boost the countries' electrification ratios to serve the burgeoning middle classes. The cheap price of coal has made it attractive to use this dirty fuel and thus boosts coal demand.

Although there is a global push for cleaner energies and a reduction to greenhouse gas emissions - which has made funds and investors ditch coal assets - coal will remain a key commodity in the next decades, particularly as the development of clean energies, including geothermal energy and coalbed methane (CBM), go rather slow. Such slow development undermines nations agreement - in Paris last year - to curb fossil fuel usage by unprecedented rates of decarbonization.

Investors who are interested to invest in shares of listed Indonesian coal miners are advised to monitor companies' ability to extend coal contracts and miners' ability to diversify their business (for example into power generation). For example, coal miner Adaro Energy's shares have surged 168 percent so far this year supported by the company's expansion into the power generation sector.

Last Update: 22 Jan 2021
Mining Index Indonesia Stock Exchange
CompanyP: 22 Jan 2021P: 21 Jan 2021Gain/LossP/E ttmYield %Gain/Loss YTD
Adaro EnergyADRO1,3501,410-4.26%N/A0.00%-4.59%
Atlas ResourcesARII246248-0.81%N/A0.00%-0.81%
Baramulti SuksessaranaBSSR1,6351,640-0.30%N/A0.00%-0.61%
Bumi ResourcesBUMI99106-6.60%N/A0.00%-18.18%
Bayan ResourcesBYAN15,60015,6000.00%N/A0.00%0.65%
Darma HenwaDEWA5458-6.90%N/A0.00%-18.18%
Delta Dunia MakmurDOID352368-4.35%N/A0.00%-0.56%
Golden Energy MinesGEMS2,5502,5500.00%N/A0.00%0.00%
Garda Tujuh BuanaGTBO75750.00%N/A0.00%0.00%
Harum EnergyHRUM4,1104,350-5.52%N/A0.00%-4.42%
Indo Tambangraya MegahITMG13,05013,550-3.69%N/A0.00%-3.15%
Resource Alam IndonesiaKKGI372380-2.11%N/A0.00%-1.59%
Mitrabara AdiperdanaMBAP2,7702,850-2.81%N/A0.00%-0.36%
Samindo ResourcesMYOH1,2851,2800.39%N/A0.00%0.39%
Perdana Karya PerkasaPKPK55550.00%N/A0.00%3.77%
Tambang Batubara Bukit AsamPTBA2,7702,860-3.15%N/A0.00%-2.81%
PetroseaPTRO1,9251,950-1.28%N/A0.00%0.52%
Golden Eagle EnergySMMT115120-4.17%N/A0.00%0.00%
Toba Bara SejahtraTOBA5455450.00%N/A0.00%-1.80%
Apexindo Pratama DutaAPEX7157150.00%N/A0.00%0.00%
Ratu Prabu EnergiARTI50500.00%N/A0.00%0.00%
Benakat IntegraBIPI50500.00%N/A0.00%0.00%
ElnusaELSA426450-5.33%N/A0.00%1.43%
Energi Mega PersadaENRG133142-6.34%N/A0.00%-6.99%
Surya Esa PerkasaESSA250268-6.72%N/A0.00%4.17%
Medco Energi InternasionalMEDC640670-4.48%N/A0.00%1.59%
Radiant Utama InterinscoRUIS2622581.55%N/A0.00%-4.38%
Aneka Tambang (Antam)ANTM2,8803,090-6.80%N/A0.00%6.27%
Cita Mineral InvestindoCITA3,0003,100-3.23%N/A0.00%-2.28%
Central Omega ResourcesDKFT183190-3.68%N/A0.00%-1.61%
Vale IndonesiaINCO6,3256,725-5.95%N/A0.00%6.30%
Merdeka Copper GoldMDKA2,4202,530-4.35%N/A0.00%2.98%
J Resources Asia PasifikPSAB222230-3.48%N/A0.00%-1.77%
SMR UtamaSMRU50500.00%N/A0.00%0.00%
TimahTINS2,2002,360-6.78%N/A0.00%8.37%
Citatah Industri MarmerCTTH56543.70%N/A0.00%1.82%
Mitra InvestindoMITI1271270.00%N/A0.00%0.00%
Combined Total68,94771,054-2.97%-0.01%

Green colour indicates upward movement Red colour indicates downward movement P = price; E = earnings; D = dividend; Yield = D/P "N/A" indicates P/E < 0 (negative earnings) "-" indicates E,D,P or YTD is not available

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