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Coal Output Falls as Prices Continue to Lag

Coal output dropped by 21 percent in the first three months of the year as low prices for the commodity forced mining companies to reduce activities to cut production costs.

Data from the Energy and Mineral Resources Ministry’s directorate general for minerals and coal shows the total output for the first quarter of the year amounted to 97 million tons, down from 124 million tons in the same period last year.

“The decline is probably due to the low prices as miners have cut production. There are also small companies that may no longer be in production,” the ministry’s director for coal, Bambang Tjahjono said.

Coal mining companies have been struggling to stay afloat amid low prices for the commodity due largely to slower demand from major coal consumers as a result of the sluggish global economy of the past few years. Hopes of a recovery in coal prices have been dimmed by the current plunge in oil prices.

The benchmark price at Newcastle Port for 6,300 kcal/kal coal delivered on a freight on board (FOB) basis was US$55.25 per ton early this month, according to figures from Platts, the global energy and metals information provider. 

Meanwhile, Indonesia’s coal -price reference (HBA) for 6,322 kcal/kal coal was $64.48 per ton for April, lower than the $67.76 per ton a month earlier.

Indonesian Coal Mining Association (APBI) chairman Pandu Sjahrir was uncertain about the coal output data and called for further verification of the government’s first quarter data. In the past, the official coal output figures in the country have frequently changed due to poor data management and illegal mining the data for which is not recorded.

Pandu said the current coal price was beyond the tolerable level. “Having seen pressures in the last few years, mining firms have tried to cut costs. The industry is now very efficient. As the price continues to decline, companies have no other choice other than cutting down production,” Pandu said.

According to him, of 14 publicly listed companies whose production makes up around 80 percent of the national output, only five reported net profits last year. Thus, he said, smaller firms were suffering more in the current situation and many had decided to discontinue business.

The significant first-quarter decline in production was the first in the country for a number of years. 

Even with plunging prices, Indonesian coal output used to continue growing because miners tried to maintain their profits by balancing the drop in price by ramping up production volume. Last year, the country’s total production reached 458 million tons.

Despite the production decline in the first quarter of the year, the mineral and coal office still expects to meet the national production target of 425 million tons by the year end, according to Bambang. 

The target is lower than last year’s total output as the government is trying to regulate production levels so the country will have enough coal supply for future use. 

However, capping coal production rarely works as the country still needs income from the sector amid declining contributions from mineral exports and oil production.

The mineral and coal office earlier said it might increase the production target to 455 million tons this year as part of an attempt to meet the target of a Rp 52 trillion contribution to state income.

Of the total production of 97 million tons in the first quarter, 79 million tons were exported and only 18 million tons were absorbed by the domestic market.