Indonesia's biggest coal producer Bumi Resources is expected to produce between 90-96 million tons of coal in full-year 2018, up from an estimated production of 84-90 million tons in the preceding year (which is roughly the same compared to the company's coal production realization of 87.7 million tons in 2016).

Dileep Srivastava, Director and Corporate Secretary of Bumi Resources, stated that high rainfall in 2017 was the biggest challenge last year as it interrupted both the production and distribution of coal. This year, however, the outlook is better and therefore Srivastava expects the company's sales to improve on the back of rising production and an estimated 5 percent growth of the coal price.

Bumi Resources also targets to produce up to 8 million tons of high calorie coal in 2018 stemming from its subsidiary Arutmin (in which Bumi Resources holds a 70 percent stake).

Indonesia's second-largest coal mining company, Adaro Energy, targets to produce 54-56 million tons of coal in 2018, up from 51.79 million tons in the preceding year. Mahardika Putranto, Head of Corporate Secretary and IR Division at Adaro Energy, said the average Newcastle index rose 34 percent year-on-year (y/y) to USD $88 per ton in 2017 due to a fundamental improvement in the coal market.

Meanwhile, Delta Dunia Makmur targets to produce 50 million tons in 2018, up nearly 25 percent (y/y) from the company's coal production realization of 40.2 million tons in 2017. Eddy Porwanto, Finance Director at Delta Dunia Makmur, said the company's rising output comes on the back of the growing coal price. This year he expects the coal price to remain stable above the USD $80 per ton level. Delta Dunia Makmur set aside USD $225 million for its capital expenditure budget in 2018. These funds will be used for the rejuvenation of heavy equipment as well as business expansion. Most of the funds stem from the company's internal cash reserves, while a small portion will originate from bank loans.

Fourthly, Indika Energy targets to produce up to 34 million tons of coal in 2018, up only slightly from an estimated 33 million tons in 2017. But despite this expected modest production growth, the company's sales are projected to rise significantly as Indika Energy's ownership in coal-producing unit Kideco Jaya Agung doubled to 91 percent. In December 2017 Indika Energy raised its stake in Kideco.

Lastly, coal miner Tambang Batubara Bukit Asam (better known as Bukit Asam) targets to produce 25.53 million tons of coal in 2018, up slightly from 24.06 million tons in 2017. Suherman, Corporate Secretary of Bukit Asam, said the company's rising production volume is tailored to coal transportation capacity of state-owned railways operator Kereta Api Indonesia on two routes, namely Tanjung Enim-Pelabuhan Tarahan (Lampung, Sumatra) and Tanjung Enim-Dermaga Kertapati (Palembang, Sumatra).

Projection Output Indonesia's Listed Coal Mining Companies:

Coal Miner
2017 2018
Bumi Resources
 87.8 84-90 90-96
Adaro Energy  52.6  51.8 54-56
Delta Dunia Makmur  35.1  40.2 45-50
Indika Energy   32   33   34
Bukit Asam  20.0  24.1  25.5
Indo Tambangraya Megah  25.6  22.6  22.6
Dwi Guna Laksana     -    4   5-6

in million tons
Source: Bisnis Indonesia

The direction of the coal price remains highly dependent on policies of the Chinese government. According to data from the National Development and Reform Commission (NDRC), China will reduce its mining spots from 10,800 to 7,000 and cut the nation's coal output up to 800 million tons up to 2020. Due to limited supply on the world market, it is bound to boost the price of coal.

Another topic that should be followed by investors is developments surrounding the domestic market obligation. Each year, the Indonesian government requires  domestic coal miners to allocate a certain amount of coal sales for the domestic market. The largest domestic buyers of coal are the nation's power plants that sell their electricity to state-owned utilities company Perusahaan Listrik Negara (PLN).

However, due to the recently strengthening coal price, PLN is burdened by the significantly higher production costs of electricity, while it cannot raise the price of electricity because these prices are fixed by the government. Therefore, PLN requests the government to set a minimum-maximum coal price for domestic sales. This price mechanism is currently being discussed and studies by authorities.

Stock Performance Comparison Indonesian Coal Miners:*

BUMI = Bumi Resources
ADRO = Adaro Energy
DOID = Delta Dunia Makmur
INDY = Indika Energy
PTBA = Tambang Batubara Bukit Asam

* normalized stocks, 1 January 2018 = 100