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:

     2007    2008    2009    2010    2011    2012    2013    2014
Production     217     240     254     275     353     412     474     458
Export     163     191     198     210     287     345     402     382
Domestic      61      49      56      65      66      67      72      76

in million tons
Source: Indonesian Coal Mining Association (APBI)

Further Reading:

Government of Indonesia Postpones the Coal Royalty Hike
Coal Mining Indonesia: Power Program, Price, Production & Renegotiations
Coal Mining Industry Indonesia: Troubled Licenses & Falling Prices
Coal Mining Update Indonesia: Coal Production to Fall in 2015
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
Overview of the Coal Mining Industry in Indonesia