Most problematic is that the economy of China, the country which purchases nearly half the world’s total coal and ore cargoes, is expected to expand at the slowest pace in 25 years in 2015 according to most analysts. Meanwhile, policy makers in China set an official economic growth target of 7 percent (year-on-year) this year, the lowest growth target of China in 15 years. Slowing economic growth in China, the world’s second-largest economy and the most important trading partner of Indonesia, impacts negatively on Indonesia as demand for Indonesian exports declines sharply hence placing pressures on Indonesia’s trade balance (as well as current account balance) and the rupiah exchange rate. Meanwhile, Indonesian exporters that rely on Chinese demand will see declining earnings.

Amid an oversupply on the Chinese market, coal demand from China fell by 22 million tons in 2014. Other factors that contributed to slowing Chinese coal demand were several new policies that aim to limit coal imports, including the new six percent import tax on thermal coal as well as new quality controls. Moreover, Chinese Premier Li Keqiang said that China, the world’s largest energy consumer, intends to reduce energy intensity (which is the amount of energy used per unit of GDP) by 3.1 percent this year. This translates into an annual reduction in coal usage of 176 million tons. Apart from combating pollution, the country wants to limit foreign coal imports to support its debt-ridden domestic coal industry. In the first two months of 2015, China's coal imports stood at 32 million tons, down 45.3 percent from the same period in 2014.

The coal price reference (HBA) that is used by Indonesian authorities declined 27 percent in 2014. This year, the HBA continued to fall amid the global oversupply. In February 2015 the price hovered near USD $63 per ton. Meanwhile, the international coal price benchmark Newcastle fell 17 percent last year, averaging USD $70.95 per ton.

Sliding global coal prices are caused by the oversupply and overcapacity in the market. However, in a move to offset lower coal prices, Indonesian coal miners tend to raise production rates (and thus in fact placing more downward pressure on prices).

Given that the economy of China is expected to continue its easing growth pace, the outlook for earnings of Indonesian coal miners in 2015 and 2016 is not positive. Coal prices are expected to remain low (or moving sideways) amid the oversupply and hence limiting miners’ profits. Total coal production of Indonesia is expected to reach 425 million metric tons in 2015.

Corporate Earnings Listed Indonesian Coal Miners:

Company Net Profit – (Loss)
12 months 2014
12 months 2014
Adaro Energy   USD 178.2 million   -23.9%   USD 3.32 billion    +1.2%
Bumi Resources
Golden Energy Mines   IDR 133.4 billion   -41.1%   IDR 5.19 trillion   +17.1%
Harum Energy
Indo Tambangraya Megah   USD 200.2 million    -2.3%   USD 1.94 billion   -10.6%
Samindo Resources
Tambang Batubara Bukit A.   IDR 2.02 trillion     +9%   IDR 13.08 trillion   +16.7%
Toba Bara Sejahtera   USD 18.3 million    -1.1%   USD 499.9 million   +18.5%

Various sources

The only exception in the table above is state-controlled Tambang Batubara Bukit Asam. Despite weak conditions in the coal mining industry the company posted a 9 percentage point growth (y/y) in net profit to IDR 2.02 trillion in 2014. This performance is caused due to a number of successful strategies aimed at reducing production costs.

Meanwhile, an official at the Indonesian Ministry of Energy and Mineral Resources said today that the country’s coal production fell 8 percent (y/y) to 36 million tons in January 2015, while exports in January were 30 million tons, up from 25.9 million tons in the previous month.

Indonesian Production, Export and Consumption of Coal:

     2007    2008    2009    2010    2011    2012    2013    2014
Production     217     240     256     275     353     383     421     435
Export     163     191     198     208     272     304     349     359
Domestic      61      49      56      67      80      79      72      76

in million tons
Source: Ministry of Energy and Mineral Resources

Further Reading:

Coal Mining News: Indonesia Plans to Raise Coal Royalties in March
News from Indonesia’s Coal Mining Industry: Production & Export
Coal Mining Industry Indonesia: Higher Royalties for IUP-Holders
Illegal Coal Shipments from Indonesia Form a Persistent Problem
Coal Mining in Indonesia: Safeguarding Future Energy Sources
Indonesia Coal Update: Export, Production and New License System
Overview of the Coal Mining Industry in Indonesia