Coal Mining Update Indonesia: Production Down, Consumption Up

While many analysts have spoken or written about the demise of coal as a key source for energy generation, rebounding coal prices in 2016 have taken markets by surprise. Thermal coal (both physical and futures) prices soared between 50 and 80 percent since the start of the year. This rally might continue into the first quarter of 2017.

What Causes the Coal Price Rally?

To answer this question we have to look at the supply and demand mechanism. Supplies in key coal producing countries have declined. Indonesia is one of these key countries. According to the BP Statistical Review of World Energy 2016, Indonesia's coal production fell 14.4 percent (y/y) to 241.1 Mtoe (million tons of oil equivalent) in 2015 from 281.7 Mtoe in the preceding year. This was the first time that BP saw Indonesia's coal output declining on a year-on-year basis. This decline is attributed to a fall in global coal demand in preceding years, particularly in China, that caused financial troubles for local miners that therefore reduced - or completely shut down - their operations in 2015 and 2016.

Meanwhile, Indonesia's coal consumption rose 15 percent (y/y) to 80.3 Mtoe in 2015, from 69.8 Mtoe in the preceding year (Indonesia is now the world's 8th largest coal consumer). Rising consumption is fueled by the government's ambitious program to expand the nation's power capacity to 35,000 MW by 2019. The majority of new power plants are coal-fired, a logical option given that Indonesia has abundant coal supplies and prices are still low. Coal already is the biggest source for power generation. According to BP coal contributes 41.4 percent to Indonesia's total energy consumption, followed by oil (37.6 percent of the total).

Not only in Indonesia but also in Europe and Asia coal demand is growing. The recent price rally is specifically attributed to rising demand from China, the world's largest energy consumer. Although China's coal demand had fallen in recent years, there has been a surge of coal imports into China in recent months as local authorities capped domestic coal mining output (to comply with the Paris Climate Agreement) and therefore turned to imports again.

Besides authorities' encouragement to curtail coal production (a strategy to boost global coal prices and safeguard future supplies), coal production in Indonesia and Australia have also declined this year due to a prolonged wet season in the key coal producing regions.

Indonesian Government's Benchmark Thermal Coal Price (HBA):

Month	2012	2013	2014	2015	2016
January	109.29	87.55	81.90	63.84	53.20
February	111.58	88.35	80.44	62.92	50.92
March	112.87	90.09	77.01	67.76	51.62
April	105.61	88.56	74.81	64.48	52.32
May	102.12	85.33	73.60	61.08	51.20
June	96.65	84.87	73.64	59.59	51.87
July	87.56	81.69	72.45	59.16	53.00
August	84.65	76.70	70.29	59.14	58.37
September	86.21	76.89	69.69	58.21	63.93
October	86.04	76.61	67.26	57.39
November	81.44	78.13	65.70	54.43
December	81.75	80.31	69.23	53.51

^{in USD/ton
Source: Ministry of Energy and Mineral Resources}

Indonesian Production, Export, Consumption & Price of Coal:

	2007	2008	2009	2010	2011	2012	2013	2014	2015
Production (in million tons)	217	240	254	275	353	412	474	458	461
Export (in million tons)	163	191	198	210	287	345	402	382	366
Domestic (in million tons)	61	49	56	65	66	67	72	76	87
Price (HBA) (in USD/ton)	n.a	n.a	70.7	91.7	118.4	95.5	82.9	72.6	60.1

^{Sources: Indonesian Coal Mining Association (APBI) & Ministry of Energy and Mineral Resources}

However, coal remains the second-most attractive fuel (after crude oil), worldwide, for power generation. Especially in emerging markets authorities are developing coal-fired power plants, including Indonesia, to boost the countries' electrification ratios to serve the burgeoning middle classes. The cheap price of coal has made it attractive to use this dirty fuel and thus boosts coal demand.

Although there is a global push for cleaner energies and a reduction to greenhouse gas emissions - which has made funds and investors ditch coal assets - coal will remain a key commodity in the next decades, particularly as the development of clean energies, including geothermal energy and coalbed methane (CBM), go rather slow. Such slow development undermines nations agreement - in Paris last year - to curb fossil fuel usage by unprecedented rates of decarbonization.

Investors who are interested to invest in shares of listed Indonesian coal miners are advised to monitor companies' ability to extend coal contracts and miners' ability to diversify their business (for example into power generation). For example, coal miner Adaro Energy's shares have surged 168 percent so far this year supported by the company's expansion into the power generation sector.

Last Update: 29 Mar 2021

Mining Index Indonesia Stock Exchange

Company	P: 29 Mar 2021	P: 28 Mar 2021	Gain/Loss	P/E ttm	Yield %	Gain/Loss YTD
Adaro EnergyADRO	1,205	1,220	-1.23%	N/A	0.00%	-14.84%
Atlas ResourcesARII	168	168	0.00%	N/A	0.00%	-32.26%
Baramulti SuksessaranaBSSR	1,590	1,570	1.27%	N/A	0.00%	-3.34%
Bumi ResourcesBUMI	61	65	-6.15%	N/A	0.00%	-49.59%
Bayan ResourcesBYAN	12,475	12,475	0.00%	N/A	0.00%	-19.52%
Darma HenwaDEWA	50	50	0.00%	N/A	0.00%	-24.24%
Delta Dunia MakmurDOID	424	432	-1.85%	N/A	0.00%	19.77%
Golden Energy MinesGEMS	2,550	2,550	0.00%	N/A	0.00%	0.00%
Garda Tujuh BuanaGTBO	75	75	0.00%	N/A	0.00%	0.00%
Harum EnergyHRUM	5,250	5,200	0.96%	N/A	0.00%	22.09%
Indo Tambangraya MegahITMG	12,175	12,200	-0.20%	N/A	0.00%	-9.65%
Resource Alam IndonesiaKKGI	294	296	-0.68%	N/A	0.00%	-22.22%
Mitrabara AdiperdanaMBAP	2,810	2,800	0.36%	N/A	0.00%	1.08%
Samindo ResourcesMYOH	1,335	1,320	1.14%	N/A	0.00%	4.30%
Perdana Karya PerkasaPKPK	62	61	1.64%	N/A	0.00%	16.98%
Tambang Batubara Bukit AsamPTBA	2,680	2,700	-0.74%	N/A	0.00%	-5.96%
PetroseaPTRO	1,850	1,860	-0.54%	N/A	0.00%	-3.39%
Golden Eagle EnergySMMT	99	101	-1.98%	N/A	0.00%	-13.91%
Toba Bara SejahtraTOBA	498	496	0.40%	N/A	0.00%	-10.27%
Apexindo Pratama DutaAPEX	394	382	3.14%	N/A	0.00%	-44.90%
Ratu Prabu EnergiARTI	50	50	0.00%	N/A	0.00%	0.00%
Benakat IntegraBIPI	50	50	0.00%	N/A	0.00%	0.00%
ElnusaELSA	362	368	-1.63%	N/A	0.00%	-13.81%
Energi Mega PersadaENRG	111	113	-1.77%	N/A	0.00%	-22.38%
Surya Esa PerkasaESSA	380	368	3.26%	N/A	0.00%	58.33%
Medco Energi InternasionalMEDC	600	610	-1.64%	N/A	0.00%	-4.76%
Radiant Utama InterinscoRUIS	286	238	20.17%	N/A	0.00%	4.38%
Aneka Tambang (Antam)ANTM	2,260	2,430	-7.00%	N/A	0.00%	-16.61%
Cita Mineral InvestindoCITA	2,970	3,000	-1.00%	N/A	0.00%	-3.26%
Central Omega ResourcesDKFT	163	165	-1.21%	N/A	0.00%	-12.37%
Vale IndonesiaINCO	4,540	4,680	-2.99%	N/A	0.00%	-23.70%
Merdeka Copper GoldMDKA	2,300	2,330	-1.29%	N/A	0.00%	-2.13%
J Resources Asia PasifikPSAB	198	198	0.00%	N/A	0.00%	-12.39%
SMR UtamaSMRU	50	50	0.00%	N/A	0.00%	0.00%
TimahTINS	1,640	1,750	-6.29%	N/A	0.00%	-19.21%
Citatah Industri MarmerCTTH	64	67	-4.48%	N/A	0.00%	16.36%
Mitra InvestindoMITI	63	63	0.00%	N/A	0.00%	-50.39%
Combined Total	62,132	62,551	-0.67%			-9.89%

Green colour indicates upward movement Red colour indicates downward movement P = price; E = earnings; D = dividend; Yield = D/P "N/A" indicates P/E < 0 (negative earnings) "-" indicates E,D,P or YTD is not available

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