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Big Coal Miners Plan Higher Production This Year

The country’s major coal miners plan to further boost production in 2016 although analysts estimate that an oversupply in the world’s coal market will continue.

The production levels proposed by large coal miners are quite different from those filed by small and medium coal miners, who mostly plan to reduce production on account of low demand in the world’s coal market.

According to data from the Energy and Mineral Resources Ministry’s mineral and coal directorate general, by mid-December, as many as 71 companies, consisting of 64 coal contract of work holders and 7 permit holders, proposed a total of 303.33 million tons of production in 2016. The 2016 production plan will be far lower compared to the proposed 419 million tons in 2015.

The ministry’s director for coal, Adhi Wibowo, said that a large number of small coal producers had yet to file their production plans for this year. However, their contribution to the country’s total production is quite small.

Figures from the mineral and coal directorate general showed that most big firms actually planned to increase their output.

Among 11 firms producing more than 5 million tons, only two firms proposed lower output in 2016, namely PT Adaro Indonesia with a slight 0.8 percent cut and PT Kideco Jaya Agung with almost 18 percent.

President director of Adaro Energy, the owner of Adaro Indonesia, Garibaldi Thohir said earlier that his company would set output at a range of 52 to 54 million tons in 2016, around 7 percent lower compared to targeted output in 2015 of 54 to 56 million tons.

“We sell most of our coal under long-term contracts and only a little we offer on the spot market. We will reduce the amount [of coal offered] on the spot market,” he said.

Meanwhile, Kideco is unlikely to raise its production because its sales remain sluggish. Figures from Jakarta-listed Indika Energy, which is Kideco’s parent firm, showed that the subsidiary company had suffered from a 15.6 percent drop in selling price from January to September 2015. The company also became less aggressive as its realization of capital expenditure, particularly for maintenance and heavy equipment spending, stood at only US$4.3 million during the first nine months of 2015, only around 25 percent of the budgeted $17.8 million. 

On the other hand, state-owned PT Bukit Asam will boost its output this year, partly because a new train transport facility and long-term contract have been sealed. 

Adhi said that small miners with less than 3 million tons in production tended to cut output because they were the most affected by plunging prices. Meanwhile, big firms continue to increase their production.

“There are fixed costs companies have to pay. To pay the costs, increasing the production volume is the only way. However, we will evaluate further if higher production is meaningless and firms continue seeing losses, we will reject the proposals,” Adhi said.

He revealed that the company that proposed the highest drop in output for 2016 was PT Kaltim Jaya Mineral, which slashed its plan to only 150,000 tons in 2016 compared to 1.2 million tons in 2015.

Global coal companies have been suffering from declining prices, particularly on slowing growth of demand while stockpiles continue to rise as producers pump up output. The benchmark thermal coal price at Newcastle Port in Australia fell to US$50.63 per ton in the last two weeks of December, according to figures from Bloomberg. The price was the lowest level since December 2006.

Indonesia’s coal reference price (HBA) for December was set at $53.51 per ton, around 16 percent lower compared to a reference price of $63.84 per ton set in January. The December price is around 57 percent lower compared to the all-time high HBA price of $127.05 per ton set in February 2011.