Not all of Indonesia’s largest coal producers are scaling back production yet, but rising costs and falling prices are squeezing their margins. With major producers having most of their 2012 production contracted and often at fixed prices negotiated earlier in the year, the impact of the current low spot prices won’t be fully felt until next year.
To compensate, some producers are expanding production to increase revenue while others have a greater focus on efficiency and watching production costs to protect margins.
London-based Bumi plc, which owns a 29.2% interest in Indonesia’s largest coal producer Bumi Resources and has an 84.5% share of Indonesia’s fifth largest coal producer Berau Coal, is already struggling to adjust to the difficult market conditions. It has recorded a loss of US$117M in 1H2012 compared with a $54M profit in the same period last year.
“We are therefore accelerating our efforts at reducing costs and improving efficiencies wherever we can,” Bumi plc CEO Nalin Rathod said. In 1H 2012, Bumi Resources mined 32.7Mt of coal, a 9.2% y-o-y increase, despite higher than average rainfall. Bumi is maintaining its 2012 production target of 75Mt, up from 66Mt in 2011. All of Bumi’s 2012 production has been contracted and priced at between $80-85/t. The company’s 1H 2012 average selling price of US$88/t was 3% lower than the corresponding period last year but the production cost of sales has increased by $7.40/t to $52.10/t mainly due to higher fuel and contractor costs.
Berau produced 9.6Mt of coal in the first half of 2012, up from 9Mt in 1H 2011, even though rainfall during this period was twice as high. However, Berau has lowered its original 2012 production forecast of 23Mt to 20-22Mt. In 2011, Berau produced 20Mt of coal. About 18Mt of Berau’s 2012 production has been contracted at an average price of $70/t. In 1H 2012, Berau’s average selling price increased $2/t y-o-y to $76.60/t but cost of sales increased by $6/t to $41.40/t.
Indonesia’s second largest producer, Adaro Energy, has revised down its production guidance for 2012 by 3Mt from 50-53Mt to 48-51Mt due to “difficult market conditions”.
“We believe the recent coal price weakness is not driven by lack of demand, but by excess of supply,” the company said. “While we are experiencing volatility in the industry, we believe the long-term fundamentals for coal remain intact.” In 1H 2012, Adaro produced 23.01Mt of coal, a 1% y-o-y increase with coal sales of 23.69Mt, a 1% y-o-y decrease. All of the company’s sales volume has been contracted for 2012, with the bulk of it contracted at a fixed price or index-linked.
Kideco, Indonesia’s third largest producer, had an output of 16.8Mt in 1H 2012, a 7.4% y-o-y increase while coal sales volume was 17.4Mt, an 11% y-o-y increase. Kideco’s net profit for the half year was $260.9M, up 21.2% y-o-y. The average selling price in 1H 2012 was $72.10/t, an increase of 7.6% y-o-y while the cash cost including the 13.5% royalty was up 9.1% y-o-y to $44.70/t on the back of higher contract mining costs and higher fuel prices. Kideco expects to produce 34Mt of coal in 2012, up 2.5Mt from last year.
Indonesia’s fourth largest coal producer Banpu-controlled Indo Tambangraya Megah (ITM) produced 12.5Mt of coal in 1H 2012, an increase of 1.5Mt y-o-y. ITM has a production target of about 27Mt for 2012. Net income increased 19% y-o-y to $244M on the back of a 24% increase in revenue. ITM’s sales volume of 12.4Mt in 1H 2012 was 1.7Mt higher than in the same period last year. Average selling price also increased 6% y-o-y to $97.70/t. ITM’s expected sales volume in 2012 is 26.5Mt of which about 81% has been sold at a fixed price and 13% has a price which is index-linked. The remaining 6% has yet to be sold.
The sixth largest Indonesian coal miner, Bayan Resources, had a net profit before tax of $71M in the six months to June 2012, a fall of 55% y-o-y. The decrease was due to higher cash costs and marginally lower average selling price, although it was partially offset by higher sales volume, , Bayan said. The miner produced 7.9Mt of coal in 1H 2012, up 11% -y-o-y, while its sales volume was 8.1Mt, up 10% y-o-y. The average cash price for the first half was $96.80/t, down 1% y-o-y, while average cash costs increased 17% y-o-y to $82.80/t to put a great deal of pressure on the company’s operating margin.
State-controlled coal miner Bukit Asam is Indonesia’s seventh largest coal producer, producing 7.08Mt of coal in 1H 2012, an increase of 14% y-o-y. Its net profit for the half year fell by 3.1% y-o-y to $245M even though the weighted average selling price was 0.5% higher y-o-y. Bukit Asam’s sales volume was 7.36Mt, up 13% y-o-y. Bukit Asam has a production target of 16.3Mt in 2012, up from 12.9Mt in 2011.
Singapore-based Sakari Resources, Indonesia’s eighth largest producer, had a net profit after tax of $38.4M for the 1H 2012, down 52% y-o-y. Sakari produced 4.71Mt of saleable product in the first half of 2012, down 15.8% y-o-y and had a similar sales volume, down 9.5% y-o-y. The average selling price was $94.62/t, a rise of 7% although cash costs also rose modestly by 8% to $57.29/t. Sakari has a production target of 9Mt in 2012.
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