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Will Indonesian Coal Production Increase in 2013?

The Indonesian government’s Director General of Coal, Thamrin Sihite says the country’s annual coal production will reach 370Mt in 2013, driven by improved Chinese demand. Energy Publishing’s Lloyd Griffin weighs up the arguments.

 
 
china-Chinese Demand | Coal  2012 | 2013 | Market Analysis | Press Release | CN
china-Chinese Demand | Coal 2012 | 2013 | Market Analysis | Press Release | CN
PRLog - Nov. 28, 2012 - While the Indonesian government’s Director General of Coal, Thamrin Sihite is forecasting growth in coal production, recent comments from Indonesia Coal Mining Association (ICMA) chairman Bob Kamandanu and coal industry analysts cast doubt on the DG’s forecast for next year.

Speaking on the sidelines of a recent investment forum in Indonesia, Kamandanu said Indonesian coal production will be flat in 2013 with many smaller miners cutting production and exiting the industry as the downturn in the market continued.

Standard & Poor’s commodity analyst Xavier Jean also believes Indonesian coal production will be tempered next year by tough global conditions.

“For 2013, production is unlikely to grow substantially in my view until Indonesian coal producers have better clarity on the demand and pricing front,” Jean said.

Kamandanu said he could not foresee prices for top grades of Indonesian thermal coal surpassing US$100/t for at least the next 18 months.

At the beginning of the year ICMA released a lofty annual production target of 390Mt, however after two revisions it has settled on an annual production quota of between 340- 350Mt for the 2012CY.

The 390Mt forecast was made when thermal prices were still above US$115/t on Energy Publishing’s NEX index FOB out of Newcastle. With prices still wallowing around the $87/t mark, some analysts say the suggestion of a recovery in demand and pricing is still a little premature.

“For 2012, I would expect a 330-350Mt range as the first half of the year was affected by very heavy rains, which resulted in lower than expected production growth, and the second part of the year will be affected by lower demand growth,” Standard & Poor’s Xavier Jean explained.

“Looking to next year, I would expect a marginal increase in production in a base case scenario of no unusual weather in H1 2013, a modest recovery in China and from the effect of residual investments from large Indonesian coal producers in capacity - so anywhere from 340 to 370Mt looks like a reasonable range,” Jean added.

Director General Sihite is banking on increased Chinese demand to drive production totals next year, and the latest Chinese coal import figures released by the General Administration of Customs will come as welcome news to the coal sector.

China’s year-to-date total coal import figures (excluding lignite) sit at about 181Mt, with close to 17Mt of foreign product received in October. The coal imports for the first 10 months of the year are up a robust 30% on the same period last year.

Analysts are divided on whether this trend will continue in 2013, however there is still hope of a potential stimulus package being unveiled by the newly-installed Chinese government to drive economic growth and continued industrialisation – which would in turn result in an increased demand for coal.

Commodity analysts CLSA suggest the Chinese appetite for foreign coal will increase, albeit at a reduced rate to that seen in previous years.

“We expect a small increase in growth rates for both China’s overall power consumption next year, as the macro economy improves, and in coal consumption as hydro-power generation growth normalises next year,” a CLSA analyst told Energy Publishing.

“On imports, China will continue to be a price-sensitive coal importer and the volume of imports will purely depend on the seaborne supply available, and domestic/seaborne market price relativities.”

As 2013 approaches, ICMA chairman Bob Kamandanu warns the Indonesian sector must be aware of future competition for global market share arising from burgeoning and existing coalfields such as Mozambique, Russia, the US and Colombia.

However, Indonesian coal miners don’t need to panic just yet according to S&P.

“We believe large-scale displacement of Indonesian and Australia coal from South Africa and Mozambique in Asian markets is unlikely in the coming two to three years because of infrastructure bottlenecks in both countries,” Jean continued.

“Also, power utilities are looking for long-term supply contracts for coal, and tend to favour established companies or mines which have demonstrated their ability to perform on their obligations.

“In our view, Indonesian coal still benefits from a good cost advantage in terms of freight, and possesses the product type, that is low ranked coal with low sulphur, that most markets in Asia are looking for. Indonesian producers have a demonstrated track record of production growth and reliable supply, especially the tier one coal producers,” Jean concluded.

This article originally appeared in Energy Publishing Asia Pacific’s Indonesian Coal Report. Produced monthly, the Indonesian Coal Report provides information on production, transport and legislation impacts on the Indonesian coal industry and power sector.  There are also statistics on monthly coal mine production to ensure subscribers are kept up to date with all that is happening with this important supply centre. For more information or to receive a free copy of the report, email marketing@energypublishing.biz or visit http://www.coalportal.com.

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Source:Energy Publishing Asia Pacific
Phone:+61 (0) 7 3020 4000
Zip:4001
City/Town:Brisbane - Queensland - Australia
Industry:Business, Energy
Tags:china, investment, indonesia, Coal, price
Last Updated:Nov 28, 2012
Shortcut:prlog.org/12032451
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