Earnings Indonesian Coal Miners Down on Weak Global Coal Prices
Corporate earnings of Indonesian coal miners that are listed on the Indonesia Stock Exchange (IDX) have generally weakened in 2014, evidencing that the coal mining industry, which was a lucrative business in the 2000s during the commodities boom (until 2011), is still experiencing a slowdown amid global economic trouble. The sluggish global economy has resulted in weak demand for commodities such as coal and crude palm oil (two important foreign exchange earners of Indonesia). Particularly slowing economic growth in China is a concern.
Most problematic is that the economy of China, the country which purchases nearly half the world’s total coal and ore cargoes, is expected to expand at the slowest pace in 25 years in 2015 according to most analysts. Meanwhile, policy makers in China set an official economic growth target of 7 percent (year-on-year) this year, the lowest growth target of China in 15 years. Slowing economic growth in China, the world’s second-largest economy and the most important trading partner of Indonesia, impacts negatively on Indonesia as demand for Indonesian exports declines sharply hence placing pressures on Indonesia’s trade balance (as well as current account balance) and the rupiah exchange rate. Meanwhile, Indonesian exporters that rely on Chinese demand will see declining earnings.
Amid an oversupply on the Chinese market, coal demand from China fell by 22 million tons in 2014. Other factors that contributed to slowing Chinese coal demand were several new policies that aim to limit coal imports, including the new six percent import tax on thermal coal as well as new quality controls. Moreover, Chinese Premier Li Keqiang said that China, the world’s largest energy consumer, intends to reduce energy intensity (which is the amount of energy used per unit of GDP) by 3.1 percent this year. This translates into an annual reduction in coal usage of 176 million tons. Apart from combating pollution, the country wants to limit foreign coal imports to support its debt-ridden domestic coal industry. In the first two months of 2015, China's coal imports stood at 32 million tons, down 45.3 percent from the same period in 2014.
The coal price reference (HBA) that is used by Indonesian authorities declined 27 percent in 2014. This year, the HBA continued to fall amid the global oversupply. In February 2015 the price hovered near USD $63 per ton. Meanwhile, the international coal price benchmark Newcastle fell 17 percent last year, averaging USD $70.95 per ton.
Sliding global coal prices are caused by the oversupply and overcapacity in the market. However, in a move to offset lower coal prices, Indonesian coal miners tend to raise production rates (and thus in fact placing more downward pressure on prices).
Given that the economy of China is expected to continue its easing growth pace, the outlook for earnings of Indonesian coal miners in 2015 and 2016 is not positive. Coal prices are expected to remain low (or moving sideways) amid the oversupply and hence limiting miners’ profits. Total coal production of Indonesia is expected to reach 425 million metric tons in 2015.
Corporate Earnings Listed Indonesian Coal Miners:
| Company | Net Profit – (Loss) 12 months 2014 |
Growth yoy |
Revenues 12 months 2014 |
Growth yoy |
| Adaro Energy | USD 178.2 million | -23.9% | USD 3.32 billion | +1.2% |
| Bumi Resources |
||||
| Golden Energy Mines | IDR 133.4 billion | -41.1% | IDR 5.19 trillion | +17.1% |
| Harum Energy | ||||
| Indo Tambangraya Megah | USD 200.2 million | -2.3% | USD 1.94 billion | -10.6% |
| Samindo Resources | ||||
| Tambang Batubara Bukit A. | IDR 2.02 trillion | +9% | IDR 13.08 trillion | +16.7% |
| Toba Bara Sejahtera | USD 18.3 million | -1.1% | USD 499.9 million | +18.5% |
Various sources
The only exception in the table above is state-controlled Tambang Batubara Bukit Asam. Despite weak conditions in the coal mining industry the company posted a 9 percentage point growth (y/y) in net profit to IDR 2.02 trillion in 2014. This performance is caused due to a number of successful strategies aimed at reducing production costs.
Meanwhile, an official at the Indonesian Ministry of Energy and Mineral Resources said today that the country’s coal production fell 8 percent (y/y) to 36 million tons in January 2015, while exports in January were 30 million tons, up from 25.9 million tons in the previous month.
Indonesian Production, Export and Consumption of Coal:
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |
| Production | 217 | 240 | 256 | 275 | 353 | 383 | 421 | 435 |
| 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:
• 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