Coal Production Indonesia Surprisingly Low in First Quarter 2015

Amid sluggish global economic growth, particularly slowing growth in China, international coal prices have declined drastically in recent years. The Indonesian government benchmark coal price (HBA) for 6,322 kcal/kal coal stands at USD $64.48 per ton in April, down from USD $67.76 per ton in the preceding month. Meanwhile, the benchmark thermal coal price at Australia’s Newcastle Port has fallen approximately 60 percent since the start of 2011, touching lowest levels since 2007. To make matters worse, there are no indications that coal prices will rebound soon, particularly amid low petroleum prices, the commodity will have difficulty to rebound.

Apart from weak coal prices, miners are also plagued by new government policies that seek to generate more revenue from its natural resources. The government aims to set higher coal royalties, nearly doubling these royalties, in May 2015. Due to the impact of low coal prices, Indonesian coal miners have already enhanced efficiency to cut costs. However, as there has not been a rebound in prices, companies now seem to be forced to cut production in order to stay alive.

Pandu Sjahrir, Chairman of the Indonesian Coal Mining Association (APBI), expressed his concern about the government placing additional burden on the country’s coal miners as these miners are already experiencing rough times amid low coal prices. Particularly smaller coal miners, producing low-quality grade coal, are expected to feel the negative impact of the government’s royalty hike. Several analysts expect that higher coal royalties will cost 150,000 jobs (primarily on the island of Kalimantan) and will boost illegal mining in Indonesia.

In 2014, about 75 million tons of coal is expected to have been produced and sold illegally in Indonesia, worth about USD $2.5 billion and implying missed government revenue of USD $500 million.

Despite weak coal output in the first quarter (which should have a positive impact on global coal prices), Indonesia’s Mineral and Coal Office expects that production will meet the government target of 425 million tons by the year end. Analysts estimate that Indonesia, the world’s top exporter of thermal coal, will produce 450 million tons of coal in 2015. The government sets a lower target as it aims to somewhat curb domestic coal output in order to safeguard supplies for future energy generation. However, the government may adjust its coal production target to 455 million tons in 2015 in an effort to collect more state income. Indonesian President Joko Widodo, who took office in October 2014, set an ambitious target of constructing 35,000 megawatts in additional power capacity by the year 2019. The majority of these new plants will be coal-fired.

Sjahrir added that he doubts that the official coal production figure of Q1-2015 (97 million tons), which is surprisingly low, is correct or accurate as the government has a history of weak data management.

Indonesian Production, Export and Consumption of Coal:

	2007	2008	2009	2010	2011	2012	2013	2014
Production	217	240	256	275	353	383	421	425
Export	163	191	198	208	272	304	349	359
Domestic	61	49	56	67	80	79	72	76

^{in million tons
Source: Ministry of Energy and Mineral Resources}

Further Reading:

• Earnings Indonesian Coal Miners Down on Weak Global Coal Prices
• Coal Mining News: Indonesia Plans to Raise Coal Royalties in March
• News from Indonesia’s Coal Mining Industry: Production & Export
• 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 in Indonesia

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