In the 2000s many Indonesian companies diversified their business to include coal mining (or shifting their core business to coal mining altogether) due to lucrative opportunities amid the 2000s commodities boom. However, since 2009 mining companies have had to face tough times. Especially since 2011 commodity prices have shown a declining trend and there remains little hope of a rebound on the short term as the sluggish global economic growth trend persists, particularly led by the economic slowdown in China.
As a result of weak conditions (and less rosy future forecasts) in Indonesia’s coal mining industry around 125 coal mining companies have ceased operations in East Kalimantan, one of the main coal producing regions in Southeast Asia’s largest economy. Some of these cases are of a temporary nature as the miner waits for coal prices to rise (as the production cost margin has turned negative implying that the company loses money if it produces and sells coal). Other cases are of a permanent nature as the coal miner went bankrupt. Either way, it has severe social implications too as the (temporary) closure of these companies cause that around 5,000 people have lost their jobs. If current conditions are to continue more coal miners will cease production and more jobs will be lost.
Slamet Brotosiwoyo, Chairman of the East Kalimantan branch of the Indonesian Employers Association (Apindo), expects that about 200 companies in the East Kalimantan province will have ceased mining activities by the year-end, provided that the current economic context persists. Brotosiwoyo said the current weak context is caused by the sluggish global economy, low petroleum prices, and limited global demand for coal. The impact is particularly felt by mining (and plantation) companies in Kalimantan and Sumatra, two important commodity producing regions.
Brotosiwoyo also said that the country’s coal miners request the government not to exacerbate the situation by imposing more tariffs in the coal mining industry. Although last month the central government announced that it would delay its plan to raise royalties for coal miners, there are still plenty of taxes to be paid by coal miners (as well as payments outside the official rules), which seriously plague miners.
There is also a positive effect of reduced coal production in Indonesia, the world’s top thermal coal exporter. Asian coal prices rose about three percent at the start of August on curbed supply from Indonesia. However, most analysts claim that a large coal price rebound is highly unlikely due to the global oversupply.
Indonesian coal exports fell 18 percent to 186.8 million tons in the first seven months of 2015 from a year earlier. Meanwhile, the country’s coal production fell 15 percent to 232.9 million tons over the same period. Last week, the Indonesian government lowered its coal production target for 2015 from 425 million tons to 400 million tons.
Indonesian Production, Export and Consumption of Coal:
in million tons
Source: Indonesian Coal Mining Association (APBI)
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