The government of Indonesia lowered its coal production target for 2015 from 425 million tons to 400 million tons as most Indonesian coal miners have cut production targets amid low global demand and weak prices. Domestic coal demand has also reduced primarily due to lower demand from state-owned power company Perusahaan Listrik Negara (PLN). In the first half of 2015, Indonesia (the world’s top thermal coal exporter) produced 204 million tons according to the Ministry of Energy and Mineral Resources.
Indonesia is the world’s top thermal exporter and therefore fluctuations in the country’s domestic coal production can influence global prices. However, in the current context, lower output in Indonesia is not expected to support global coal prices.
There are no signs that coal prices are to rebound on the short or middle term amid persistent concerns about a global supply glut in combination with expected declining coal demand from China. In the first seven months of 2015, coal prices have slid around 10 percent, touching a near-decade low, and causing financial pressures for markets that are major exporters of the fossil fuel that accounts for about half of the world’s electricity generation (these markets include Indonesia, Australia and South Africa). Some analysts expect coal prices to reach their bottom in 2016 provided that capacity is removed from the market.
One of the major causes for the coal supply glut is falling demand from China, the world’s second-largest economy and largest energy consumer. In the first six months of 2015 China’s coal imports declined 37.5 percent (y/y) due to the country’s support for domestic producers, tighter quality limits on seaborne coal imports, and environmentally driven causes. Energy consumption in China slowed to 0.7 percent (y/y) in the first half of 2015.
Last week, the Indonesian Coal Mining Association (APBI) said that nearly 80 percent of Indonesian coal mining companies have temporarily ceased production as the production cost margin has turned negative (meaning that the companies lose money when they produce and sell coal). Particularly for the smaller coal mining companies this is a problem and bankruptcy is looming for many. There are currently approximately 3,000 Mining Business Permit (IUP) holders in Indonesia but only 500 are still active.
Indonesian Production, Export and Consumption of Coal:
in million tons
Source: Indonesian Coal Mining Association (APBI)
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