Indonesia to hold coal output steady despite price rally

Coal fossil fuel08 August 2016, News Wires – Indonesian thermal coal miners will be unable to ramp up output this year due to logistical and debt constraints, despite a strong price rally in recent months, the Indonesian Coal Mining Association said.

Global thermal coal prices have risen sharply on an unexpected jump in imports from top consumer China as it curbs local capacity, as well as demand from other emerging Asian markets and even developed economies, particularly South Korea.

However, Indonesian coal producers that slashed output in recent years due to slumping prices are not expected to be in a position to quickly boost output, association chairman Pandu Sjahrir told Reuters.

Indonesia will keep its exports flat this year at around 300 million tonnes and at similar levels next year, although producers would likely look to boost output in 2017 if the price gains prove sustainable, he said.

“Balance sheet constraints will not help in terms of growing production,” Sjahrir said.

Large numbers of Indonesia’s cash-strapped smaller miners saddled with debt obligations and who have cut production will find it difficult to get bank loans, he said.

“They need to see that this level is sustainable for the next six-to-twelve months before re-adjusting mine plans and changing production behavior.”

Asian benchmark thermal coal prices have climbed by nearly 30 percent since mid-May to around $65 per ton, catching producers by surprise.

“We can’t produce to follow prices because we have logistical constraints,” Arviyan Arifin, CEO of state-owned coal miner Bukit Asam told Reuters.

Indonesia exports around three-quarters of its coal production, which was forecast in May to reach around 400 million tonnes this year, down from 440 million tonnes in 2015.

OTHERS WILL BENEFIT

Indonesia’s biggest thermal coal producer, Bumi Resources, expects production to rise this year to 85 million tonnes from to 82 million to 83 million tonnes in 2015, director Dileep Srivastava said.

But with Indonesia’s overall exports more or less flat while demand firms, miners elsewhere will benefit.

Enjoying cheap freight rates and an expanded Panama Canal, far-away Colombian miners have recently placed significant volumes into Asia, mostly to South Korea, but also Japan.

Australian miners, who have kept output high despite the price slump, also stand to benefit.

Indonesia’s coal industry, meanwhile, hopes that the price rally will hold.

“A fair amount depends on what happens to the market over the next 3 to 4 months,” Bumi’s Srivastava said. “Demand, which was pretty static, is showing renewed energy. How sustainable that is, time will tell.”

  • Reuters
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