Indonesia's Coal Price Continues to Soar in 2nd Half of 2016

Sujatmiko, spokesman for Indonesia's Energy and Mineral Resources Ministry, said the sharply rallying coal price is caused by the combination of sliding coal production in combination with rising coal demand. Also, higher crude oil prices - boosted by the recent agreement among OPEC countries to curtail oil output - have a positive impact on commodity prices.

Sliding global coal production particularly stems from China that decided to streamline its coal industry by limiting coal production, hence combating the local oversupply and making the country's coal policies in line with the Paris Climate Agreement. Secondly, coal output in other coal producing nations (including Indonesia) has declined as the prolonged fall in coal prices between the years 2011 and mid-2016 caused financial troubles for many coal miners and therefore theses companies had to reduce - or completely shut down - operations in 2015 and 2016.

Meanwhile, Hendra Sinadia, Deputy Executive Director of the Indonesian Coal Mining Association (APBI), adds that not only coal production has fallen, but coal demand has increased ahead of the year-end due to the winter season.

However, we should not become too enthusiastic about the ongoing coal price rally. There is the possibility that China will loosen its policies in the coal mining sector and thus coal production can rise rapidly in 2017 thereby pushing coal prices lower. Moreover, a lower coal price is important for the coal-fired power plants in China.

Read more: Indonesia's Coal Price Soaring, Reason for Euphoria? Or Not?

Earlier this year, Chinese authorities announced it would cut working days on coal mines from 330 days to 276 days in April 2016 in an effort to remove excess capacity from the industry. Moreover, it announced to close more than 1,000 coal mines and slash coal production by 500 million tons in the next five years.

Several days ago listed Indonesian coal miner Adaro Energy announced it reached an agreement to supply coal to the Electricity Generating Authority of Thailand (EGAT) for the next two decades as well as selling a stake in its main mining subsidiary to Thailand's state-owned entity. EGAT will acquire an 11.53 percent stake in Adaro Indonesia through its subsidiary for an estimated USD $325 million. This deal will help Adaro Energy to capture long-term demand for coal and give it the financial strength that is required to cope with rougher times in the coal market.

Read more: Overview & Analysis of Indonesia's Coal Mining Sector

Now the HBA for December is known, we can also calculate the average HBA coal price for full-year 2016: USD $61.84 per ton, slightly higher compared to the average of USD $60.13 per ton in full-year 2015.

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	69.07
November	81.44	78.13	65.70	54.43	84.89
December	81.75	80.31	69.23	53.51	101.69

^{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}

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