Bob Kamandanu, Chairman of the Indonesian Coal Mining Association (APBI), advises the government of Indonesia to cut the country’s coal production by about 50 million tons and cap coal exports at 300 million tons in 2015 in an effort to boost global coal prices which are currently touching an eight-year low amid the sluggish global economy (particularly weakening coal demand from China) in combination with a coal oversupply. Indonesia is the world’s leading exporter of thermal coal which is primarily used in electricity generation.
In early January 2015, R. Sukhyar, Director General for Coal and Mineral Resources at the Indonesian Ministry of Energy and Mineral Resources, said that this year Southeast Asia’s largest economy targets to produce 425 million tons of coal and to export 333 million tons. These government targets already imply a decline from last year’s results when Indonesia produced a total of 435 million tons and exported 359 million tons of coal. Kamandanu said that if the government fails to curb coal production and export, then it may take two years before coal prices start to recover. Each year, the government of Indonesia sets a maximum production target. However, this target is usually exceeded by the country’s coal miners, particularly when miners try to offset low coal prices by increasing production rates (and hence placing more downward pressure on coal prices). For example, Berau Coal Energy, Indonesia's fifth-largest coal producer, aims to raise coal production to 27 million tons in 2015 (from 24.2 million last year).
Apart from legal coal shipments, Indonesia is plagued by illegal shipments. Government authorities estimate that each year between 30 and 40 million tons of coal is exported illegally from Indonesia. This has several negative consequences. For example, it provides additional downward pressure on global coal prices amid the current global coal oversupply, and causes the Indonesian government to miss out on royalties and tax income. Moreover, massive illegal coal shipments are evidence of the country’s weak law enforcement and this is not good for the nation’s reputation (which is already poor regarding law enforcement).
However, the recently fallen global oil prices are positive for coal miners as fuel costs account for about 40 percent of miners’ production costs.
Indonesian Production, Export and Consumption of Coal:
in million tons
Source: Ministry of Energy and Mineral Resources
Bumi Resources Posts Profit Again in 9M-2014
Earlier this week it had been reported that net profit of Bumi Resources, Indonesia’s largest coal miner, swung to a profit of USD $13.3 million in the first three quarters of 2015. The company had posted a loss of USD $377.5 million over the same period a year earlier. Its revenue stood at USD $2.2 billion for the same period, down from USD $2.65 billion last year. In recent years, Bumi Resources has often made news headlines for negative reasons such as default on bonds, a failed cooperation with British financier Nathaniel Rothschild to form one of the world’s most powerful coal mining groups (London-listed Bumi Plc), and a corporate credit rating downgrade by S&P to ‘default’ (stating that the company is unlikely to service its debt for at least the next six months).
Stock Quote Bumi Resources - BUMI:
• 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 of Indonesia