Ever since China decided to streamline its coal industry by limiting output (combating the local oversupply), global coal prices have jumped sharply. Indonesia's benchmark thermal coal price (known as the Harga Batubara Acuan, or HBA) - a monthly price that is set by Indonesia's Energy and Mineral Resources Ministry and is based on domestic and international coal indices - soared 22.9 percent (m/m) to USD $84.89 per metric ton in November 2016 (from USD $69.07 per ton in the preceding month).

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Indonesia's thermal coal price (in Indonesian: Harga Batubara Acuan, or HBA), a monthly price set by Indonesia's Energy and Mineral Resources Ministry and which is based on domestic and global coal prices, surged further in October 2016. The HBA soared 8.04 percent month-on-month (m/m) to USD $69.07 per metric ton from USD $63.93 per ton in the preceding month. Indonesia's HBA price is now at its highest level since August 2014. This rally is mainly supported by rising coal demand in China.

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Coal prices are experiencing a remarkable rebound so far this year. On Thursday (15/09) the coal price touched USD $70.95 per metric ton (September delivery, ICE Futures Exchange), up about 53 percent from its position at the year-start. For Indonesia, a country that ranks among the world’s biggest coal producers and exporters, this is good news. There are plenty of coal companies active in Indonesia that will see improving corporate earnings due to the bullish price. Moreover, several coal mining companies that are listed on the Indonesia Stock Exchange (IDX) have also seen their shares surge significantly.

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The DBS Group Research expects that the coal price will remain in the range of USD $60 - $65 per metric ton in the second half of 2016. Given that coal demand from China remains bleak (as authorities are eager to meet environmental accords) chances are slim that the coal price can manage to go higher. For Indonesia, a country that - in terms of commodity exports - is highly dependent on coal and crude palm oil, it means challenges remain despite the recently sharply rebounding coal prices.

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Coal miners have become cheerful over the past two months as coal prices have surged sharply. Indonesia's thermal coal price (in Indonesian: Harga Batubara Acuan, abbreviated HBA), a monthly price set by Indonesia's Energy and Mineral Resource Ministry and which is based on domestic and global coal prices, soared 9.5 percent (m/m) to USD $63.93 metric tons in September 2016, touching its highest level since April 2015. Moreover, in the preceding month the HBA had already surged by 10.1 percent (m/m). What explains this rise and is it sustainable?

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Indonesia's thermal coal price (in Indonesian: Harga Batubara Acuan, abbreviated HBA), a monthly price set by Indonesia's Energy and Mineral Resource Ministry and based on both domestic and global coal prices, rose 9.5 percent month-on-month (m/m) to USD $63.93 metric tons in September 2016, touching the highest level since April 2015. The recent rally is caused by supply cuts in combination with rising coal demand from China. Regarding the near-term, thermal coal prices are believed to have more upside room due to the approaching winter season.

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Over the past two months global coal prices have surged, primarily on the back of rising coal demand in China where local coal production capacity was curtailed as authorities seek to curb industrial overcapacity. Indonesia's coal price (Harga Batubara Acuan, abbreviated HBA), a monthly rate set by the nation's Energy and Mineral Resource Ministry, rose 10.1 percent (m/m) to USD $58.37 per ton in August from USD $53.00 per ton in the preceding month, a remarkable rebound that pushed the HBA to a one-year high.

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Indonesia's benchmark thermal coal price (harga batubara acuan, HBA), the monthly reference price that is set by the Ministry of Energy and Mineral Resources, rose 2.29 percent (m/m) to USD $53 per metric ton (FOB) in July 2016. The Energy Ministry stated that the higher coal price is supported by the recovery in crude oil prices in May and the start of June, as well as a (temporary) rise in coal demand from India and China. However, compared to one year ago, the coal price is still down by more than 10 percent (y/y).

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The June 2016 reference thermal coal price of Indonesia (in Indonesian: Harga Batubara Acuan, HBA), a price set by Indonesia's Energy and Mineral Resources Ministry on a monthly basis, rose 1.3 percent month-on-month to USD $51.81 per metric ton (FOB). In line with our earlier predictions, Indonesia's coal price has been stabilizing just above the USD $50 per ton level so far this year, supported by miners' decision to cut output amid low coal prices. Meanwhile, coal prices in Europe surged to the highest level in ten months, buoyed by rising fuel prices as well as supply disruptions.

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There will not be a rebound in the coal industry anytime soon. Indonesia, one of the world's leading (thermal) coal producers and exporters, says the nation's coal output will continue to decline in 2016 and 2017. This continued decline in production is caused by the decision of smaller miners to cease production amid the globe's low coal prices that touched a decade-low earlier this year. There should occur a positive side-effect, however, if miners indeed cut their output and that is upward support for coal prices.

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The Indonesia Stock Exchange (IDX) suspended trading of the shares of coal miner Bumi Resources between 1 July and 4 October 2016 because the company had not reported its financial report (covering the corporate earnings of 2015) in time. On Tuesday (04/10) Bumi Resources, part of the controversial Bakrie Group conglomerate, finally announced that it recorded a net loss of USD $1.9 billion over 2015. This poor performance was mainly attributed to the impairment of assets and write-offs for its receivables.

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Indonesia's Ministry of Energy and Mineral Resources will soon issue a moratorium on new coal mining concessions. This moratorium will be implemented after the issuance of a planned presidential instruction regarding a five-year moratorium on new palm oil plantation concessions. Heriyanto, Head of the Legal Department Directorate General of Minerals and Coal at the Energy Ministry, emphasized that the moratorium in Indonesia's mining industry only involves coal, not the mining of minerals.

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Domestic coal consumption in Indonesia rose 34.5 percent (y/y) to 24.5 million tons in the January-April 2016 period, according to data from Indonesia's Energy and Mineral Resources Ministry. This growth is caused by higher domestic coal demand due to Indonesia's ambitious 35,000 MW program (many of the power plants constructed in this program are coal-fired). Meanwhile, Indonesia's coal exports were down 14 percent (y/y) to 68 million metric tons over the same period amid sluggish global demand.

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State-controlled coal mining company Tambang Batubara Bukit Asam may be the only Indonesian coal producer that will post higher sales in 2016, both in terms of volume and revenue. The nation's other coal miners are expected to see further dropping coal sales due to sluggish global demand although coal prices may stabilize this year. According to Trimegah Securities Bukit Asam's coal sales volume will rise 25 percent (y/y) to 23.9 million tons in 2016, while revenue is estimated to rise 9 percent (y/y) to IDR 15 trillion (approx. USD $1.1 billion), and coal mining operational costs to fall by 3 percent (y/y) to USD $39.8 per ton.

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Coal production in Indonesia fell 15.4 percent to 263 million tons in the first eight months of 2015 (from 311 million tons in the same period last year) as Indonesian coal miners cut production due to low global coal demand. Last week it was reported that Indonesia’s reference thermal coal price hit another all-time low at USD $58.21 per metric ton (FOB), down 1.6 percent from the August reference rate, and the fifth consecutive month of decline. Meanwhile, Indonesia’s coal exports fell 18 percent to 211 million tons (y/y) in the January-August period.

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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.

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The government of Indonesia is eager to use current low coal prices as the context to push for consolidation in the country’s coal mining sector. Sudirman Said, Minister of Energy and Mineral Resources, announced that the government may revoke over 4,000 troubled mining licenses this month and install a better licensing system. Licenses that may be revoked are Mining Business Permits (IUPs), not the long-standing Coal Contracts of Work (PKP2B) that are held by companies such as Bumi Resources and Berau Coal Energy.

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On Monday (11/05), it was announced that the reference coal price of Indonesia declined 5.2 percent (month-on-month) to an all-time low of USD $61.08 per metric ton in May. This benchmark price, which is set by the government each month based on the average of four coal indexes (Indonesia Coal Index, Platts Index, New Castle Export Index and New Castle Global Coal Index), continued to plummet due to the coal oversupply in combination with weak global coal demand (particularly falling demand from China).

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The government of Indonesia plans to raise royalties for coal mining companies that hold a Mining Business Permit (Izin Usaha Pertambangan, abbreviated IUP) by revising Government Regulation No. 9 - 2012 on Tariff and Types of Non-Tax Revenue in a move to generate more state income. R. Sukhyar, Director General for Coal and Mineral Resources at the Indonesian Ministry of Energy and Mineral Resources, said that the domestic coal industry remains a vital source of state income, particularly amid diminished mineral exports.

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Bumi Resources, a leading Indonesian coal mining company, came close to default on its USD $300 million November 2016 bond before paying an overdue coupon earlier this week. The company, which is in the hands of the controversial Bakrie family, is obliged to make two coupon payments per year but postponed payment due on 12 May 2014 in order to negotiate with its creditors and lenders. According to a statement of Bumi Resources Director Dileep Srivastava, the payment was done on 11 June 2014.

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