The production of heavy equipment in Indonesia in the first half of 2014 fell by 25 percent (year-on-year) to 2,292 units. The decline in production is due to the still weak state of the mining and construction sectors in Southeast Asia’s largest economy. Main reasons being the implementation of the mineral ore export ban in January 2014 and low commodity prices, for example coal. Limited construction projects have been undertaken in the first half of 2014 as investors wanted to wait for the results of Indonesia’s legislative and presidential elections first.

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Indonesian coal production reached 213 million tons in the first half of 2014, a 7.6 percentage point growth from the same period in the previous year (198 million tons), as coal miners have been boosting coal output amid sluggish international coal prices. Approximately 75 percent of this output (158 million tons) was exported abroad. Indonesia is the world’s largest thermal coal producer and exporter. The country’s coal primarily consists of the medium-quality type (between 5100 and 6100 cal/gram) and the low-quality type (below 5100 cal/gram).

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Mitrabara Adiperdana, an Indonesia-based coal miner, is planning to conduct an initial public offering (IPO) on the Indonesia Stock Exchange in July 2014. The company will offer 273.03 million shares, or 22 percent of its enlarged share base, to the public at a price range of IDR 1,150 to IDR 1,350 per share. Through this corporate action, the miner targets to raise IDR 368.6 billion (USD $31 million). Reportedly, after the IPO, Japan’s Idemitsu Kosan Co Ltd has an option to purchase a 27.68 percent stake in the Indonesian coal miner.

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The central bank of Indonesia (Bank Indonesia) expects to see a trade surplus in May 2014. Governor of Bank Indonesia Agus Martowardojo stated that he is optimistic that Indonesia’s trade balance will show positive growth after recording a shocking deficit of USD $1.96 billion in April 2014. This deficit was mainly the result of weak global demand for crude palm oil and coal, both of which are Indonesia’s most important foreign exchange earners in the non-oil & gas sector. However, this global demand is expected to have remained weak in May.

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Indonesian state-owned electricity firm Perusahaan Listrik Negara (PLN) said that Indonesia - Southeast Asia's largest economy - is expected to nearly double domestic consumption of thermal coal over the next eight years in an attempt to meet the nation's growing electricity demand. Moreover, coal, of which the country has huge reserves at its disposal, is regarded a better fuel source in electricity generation compared to expensive diesel. At present, many power stations in Indonesia are still diesel-powered.

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The central bank of Indonesia (Bank Indonesia) expects to see a trade deficit in the month of April 2014 due to a significant increase of imports (around 11 percent month-to-month), while prices of a number of important export commodities have been under pressure (including coal and crude palm oil). Governor of Bank Indonesia Agus Martowardojo said that weak demand from China impacts negatively on the trade balance. Bank Indonesia's statement contradicts the institution's earlier statement which hinted at a surplus of USD $600 million in April.

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The Governor of Indonesia’s central bank (Bank Indonesia), Agus Martowardojo, expects that the country’s trade balance will post a surplus of around USD $600 million in April 2014, roughly similar to the surplus that was recorded one month earlier (USD $673 million). The April 2014 surplus would be supported by an improvement in non-oil & gas exports, stable commodity prices (particularly coal and crude palm oil/CPO), as well as the waning influence of the Minerba Act.

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On 18 May 2014, Indonesia Investments released the latest edition of its newsletter. This free newsletter, which is sent to our subscribers once per week, contains the most important news stories from Indonesia that have been reported on our website in the last seven days. Most of the topics involve political and economic topics such as updates on the presidential election, the revision of Indonesia's macroeconomic assumptions, youth unemployment, palm oil, coal, company profiles of HM Sampoerna and Telekomunikasi Indonesia, and more.

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An official at Indonesia's Ministry of Energy and Mineral Resources stated that the production of coal in the first four months of 2014 grew five percent (year-on-year) to 147 million tons. As such, the country is still on track to meet this year's coal production target of 426 million tons. Exports of Indonesian coal totaled 109 million tons in the January-April 2014 period, while the remainder (38 million tons) was sold on the domestic market. Indonesia, Southeast Asia's largest economy, is one of the world's largest producers and exporters of coal.

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Indonesia's March 2014 trade balance recorded a surplus of USD $673 million as the value of exports reached USD $15.21 billion, while imports stood at USD $14.54 billion. It was the second consecutive monthly trade surplus for Indonesia. In February 2014, the country posted an USD $843.4 million trade surplus. In the first three months of this year, Indonesia's trade balance now accumulated to an USD $1.07 billion surplus. Market participants will be pleased to see this balance as it eases pressures on the current account deficit.

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Indonesia's Ministry of Energy and Mineral Resources will soon issue a moratorium on new coal mining concessions. This moratorium will be implemented after the issuance of a planned presidential instruction regarding a five-year moratorium on new palm oil plantation concessions. Heriyanto, Head of the Legal Department Directorate General of Minerals and Coal at the Energy Ministry, emphasized that the moratorium in Indonesia's mining industry only involves coal, not the mining of minerals.

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Domestic coal consumption in Indonesia rose 34.5 percent (y/y) to 24.5 million tons in the January-April 2016 period, according to data from Indonesia's Energy and Mineral Resources Ministry. This growth is caused by higher domestic coal demand due to Indonesia's ambitious 35,000 MW program (many of the power plants constructed in this program are coal-fired). Meanwhile, Indonesia's coal exports were down 14 percent (y/y) to 68 million metric tons over the same period amid sluggish global demand.

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Last week it was announced that the Japan Bank for International Cooperation (JBIC) agreed to a USD $3.4 billion loan for the construction of the controversial Batang power plant in Central Java. This power plant project is controversial as it met fierce resistance from the local community (triggering concerns about human rights violations related to the land acquisition process) as well as criticism from environmental groups, saying this power plant - set to become Indonesia's largest coal-fired power plant - runs counter to Indonesia's earlier commitment to reduce carbon emissions.

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Adaro Energy, one of Indonesia's leading coal mining companies, is still plagued by the globe's weak coal prices. However, the company's estimated lower cash and operational costs give a positive boost to the miner's corporate earnings this year. According to Danareksa Sekuritas' estimates the cost of mining for Adaro Energy (outside royalty payments) will range between USD $26 - $28 per ton in 2016, slightly down from USD $28 per ton last year. Meanwhile, the miner's stripping ratio is expected to decline to 4.7x in 2016 (from 5.2x last year).

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One of the leading diversified conglomerates in Indonesia, Astra International, is facing challenges. Demand for cars has been on the decline in Indonesia over the past two years. This is a big challenge for the company because the automotive sector accounts for about half of Astra's total earnings. Meanwhile, its heavy equipment & mining segment and the financial services segment have been under severe pressure. Net income in the heavy equipment & mining segment plunged 55 percent (y/y) in Q1-2016, while net income in the financial services segment tumbled 46 percent (y/y) over the same period.

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State-controlled coal mining company Tambang Batubara Bukit Asam may be the only Indonesian coal producer that will post higher sales in 2016, both in terms of volume and revenue. The nation's other coal miners are expected to see further dropping coal sales due to sluggish global demand although coal prices may stabilize this year. According to Trimegah Securities Bukit Asam's coal sales volume will rise 25 percent (y/y) to 23.9 million tons in 2016, while revenue is estimated to rise 9 percent (y/y) to IDR 15 trillion (approx. USD $1.1 billion), and coal mining operational costs to fall by 3 percent (y/y) to USD $39.8 per ton.

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United Tractors, the largest distributor of heavy equipment in Indonesia, is still facing challenges due to persistently weak demand for heavy equipment amid low commodity prices. Business activity in the agribusiness, mining and infrastructure sectors have slowed This context is expected to lead to slowing net profit for the company in both 2015 and 2016. The company, a subsidiary of Astra International (Indonesia's largest diversified conglomerate), controls a market share of around 40 percent in Indonesia's heavy equipment market.

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Coal production in Indonesia fell 15.4 percent to 263 million tons in the first eight months of 2015 (from 311 million tons in the same period last year) as Indonesian coal miners cut production due to low global coal demand. Last week it was reported that Indonesia’s reference thermal coal price hit another all-time low at USD $58.21 per metric ton (FOB), down 1.6 percent from the August reference rate, and the fifth consecutive month of decline. Meanwhile, Indonesia’s coal exports fell 18 percent to 211 million tons (y/y) in the January-August period.

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In the 2000s many Indonesian companies diversified their business to include coal mining (or shifting their core business to coal mining altogether) due to lucrative opportunities amid the 2000s commodities boom. However, since 2009 mining companies have had to face tough times. Especially since 2011 commodity prices have shown a declining trend and there remains little hope of a rebound on the short term as the sluggish global economic growth trend persists, particularly led by the economic slowdown in China.

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The government of Indonesia is eager to use current low coal prices as the context to push for consolidation in the country’s coal mining sector. Sudirman Said, Minister of Energy and Mineral Resources, announced that the government may revoke over 4,000 troubled mining licenses this month and install a better licensing system. Licenses that may be revoked are Mining Business Permits (IUPs), not the long-standing Coal Contracts of Work (PKP2B) that are held by companies such as Bumi Resources and Berau Coal Energy.

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