20 January 2020 (closed)
USD/IDR (13,678) +20.00 +0.15%
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Jakarta Composite Index (6,245.04) -46.61 -0.74%
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.
Bambang Gatot, Director General for Coal and Minerals at Indonesia's Energy and Mineral Resources Ministry, said especially the smaller Indonesian miners have been under severe pressure ever since coal prices slid after 2011 because these companies have less cash reserves to fall back on. Ceasing production is basically the only option as production costs exceed sales income.
Indonesia's coal production is estimated to reach 419 million tons in 2016 and 409 million tons in 2017 according to Gatot. Part of the problem is that India's demand for coal is expected to decline as the nation is eager to purchase higher quality coal from Australia, South Africa and Colombia (Indonesian coal consists mostly of the lower-quality type). Coal accounts for more than 60 percent of power generation in India and over 75 percent of its electricity production. In February 2016 the nation had doubled the clean-energy tax on coal in an effort to combat environmental pollution. This tax has a bigger impact on low-grade coal than on high-grade coal and therefore India prefers to import high grade coal from Australia, South Africa and Colombia.
Fabio Gabrieli, Trading Director for Dry Bulk and Energy at Mercuria Energy, expects the global thermal coal trade to fall by 30 million tons in 2016 particularly due to declining demand in Europe and India. With a narrow gap between the gas and coal price Europe is expected to reduce the use of coal for its power generation. While coal demand in Europe, India and also China is on the decline, Gabrieli sees rising coal demand in countries such as Thailand, the Philippines, Malaysia, Vietnam, South Korea and Japan. It are these countries "where the growth is", he said at the Coaltrans Asia conference in Bali on Monday (30/05), as "around 50 GW of coal-fired capacity is to be commissioned in these nations before the end of the decade."
The Indonesian government's benchmark thermal coal price (HBA) has more or less stabilized since February 2016 at the level of slightly over USD $51 per ton. Earlier the Indonesian Coal Mining Association (APBI) stated that the coal price is expected to remain near this level in the remainder of 2016. The table below shows that Indonesia's coal price has halved over the past four years.
Indonesian Government's Benchmark Thermal Coal Price (HBA):
Source: Ministry of Energy and Mineral Resources
Be careful where you go with your money.
Credit rating agencies such as Moody's are critical in their assessment of traditional energy companies.
For example Moody's downgraded Shell and the prospect is for the time being nagative. Peabody, the largest private coal company in the world, asked suspension of payments - the market value of Peabody plummeted since 2011 of about $ 20 billion to several tens of millions..
Key coal markets China and India seem to cut coal imports drastically... well, who is gonna buy Indonesian coal then? I guess it's time to focus on renewable energy...