India Boosts Domestic Coal Production: Pressure on Coal Prices

Indian Coal Secretary Anil Swarup said India's state-owned mining companies still have ample room to optimize coal production volumes. For example, Coal India Ltd, reportedly the world's largest coal producer (accounting for more than 80 percent of coal production in India), has seen sharply rising coal production volumes but in terms of productivity it still trails far behind the industry's global average. Between 31 March 2015 and 31 January 2016, Coal India's coal production rose 9.6 percent (y/y) to an unprecedented 426.3 million tons. Indian Prime Minister Narendra Modi targets Coal India's production to rise to 1 billion tons (per year) by 2020, in line with the country's quest for energy security. Optimal coal production of Coal India will be encouraged through the implementation of more efficient mining technologies.

American multinational investment banking firm Goldman Sachs Inc estimates that rising coal production in India will have curbed international coal trade by 10 percent in 2020. Besides optimizing output at state-owned coal miners, the Indian government also makes efforts to build new coal mines and open the coal mining industry to private investors.

Goldman Sachs also stated in a recent report that it downgraded its long-term coal price outlook to USD $42.50 per ton as the decline in long-term coal demand appears to be irreversible. Meanwhile, the World Bank sees coal prices fall to USD $50 per ton in 2016 amid weak demand and excess supply.

The fate of coal prices is also heavily determined by global crude oil prices. As oil prices may increase on the short-term due to expectation of an "oil production freeze" pact between OPEC and Russia as well as expectation that the US Federal Reserve will not raise its benchmark interest rate again in the next four months (hence giving rise to a weaker US dollar, thus supporting global commodity prices).

Further Reading: Overview of Indonesia's Coal Industry

For Indonesian coal miners it is good news that domestic coal consumption is estimated to grow due to the development of coal-fired power plants across the Indonesian nation. It will not be enough, however, to make up for weak global coal demand.

Indonesian Production, Export, Consumption & Price of Coal:

	2007	2008	2009	2010	2011	2012	2013	2014	2015
Production (in million tons)	217	240	254	275	353	412	474	458	376
Export (in million tons)	163	191	198	210	287	345	402	382	296
Domestic (in million tons)	61	49	56	65	66	67	72	76	80
Price (HBA) (in USD/ton)	n.a	n.a	70.7	91.7	118.4	95.5	82.9	72.6	60.1

^{Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources}

Indonesian Government's Benchmark Thermal Coal Price (HBA):

Month	2012	2013	2014	2015	2016
January	109.29	87.55	81.90	63.84	53.20
February	111.58	88.35	80.44	62.92	50.92
March	112.87	90.09	77.01	67.76
April	105.61	88.56	74.81	64.48
May	102.12	85.33	73.60	61.08
June	96.65	84.87	73.64	59.59
July	87.56	81.69	72.45	59.16
August	84.65	76.70	70.29	59.14
September	86.21	76.89	69.69	58.21
October	86.04	76.61	67.26	57.39
November	81.44	78.13	65.70	54.43
December	81.75	80.31	69.23	53.51

^{in USD/ton
Source: Ministry of Energy and Mineral Resources}

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