Bloomberg News

Indonesian Coal Output Seen Missing Forecast Amid Mine Stoppages

June 02, 2013

Coal output from Indonesia, the world’s largest exporter of the fuel for power stations, may be 2.5 percent lower than initial forecasts this year as miners slow expansion amid lower prices.

Indonesia may produce 390 million metric tons this year, lower than a forecast of 400 million made in February, Bob Kamandanu, the chairman of the Indonesian Coal Mining Association, said in an interview last week before addressing the annual Coaltrans Asia conference in Bali today. Low prices have hurt smaller miners, prompting them to close or temporary suspend their business, he said.

“Growth is still happening in big producers, however, idle capacity in other mines offsets this production growth,” Kamandanu said. The country’s production may grow by around 3 percent annually, slowing from an average 7 percent in previous years, he said.

Asia’s benchmark coal prices have fallen more than half since a peak in mid-2008 because of slowing Chinese imports and rising output from miners. While Indonesia’s domestic production growth slows, the country is also facing weaker demand from its biggest buyer as China considers banning lower-quality imports.

Thermal coal at the Australian port of Newcastle was $87.35 a ton in the week ended May 24, according to data from IHS McCloskey. The price touched $192.50 a ton in July 2008. Indonesian bituminous coal with a calorific value of 5,800 kilocalories a kilogram and as much as 2 percent sulfur averaged $69.70 a ton in the week ended May 24, down from $72.50 a week earlier, according to the median forecast in the Bloomberg survey of five traders.

Newcastle Price

“The Newcastle price will average from $90 to $95 a ton this year,” Kamandanu said. “It won’t reach $100 as there are still uncertainties in the market.”

China may ban purchases of coal with a heating value below about 4,540 kilocalories a kilogram, a sulfur content above 1 percent and ash above 25 percent, a draft National Energy Administration regulation obtained by Bloomberg News shows. It doesn’t specify when the ban would be implemented. China was Indonesia’s top coal buyer last year. India and Japan ranked second and third respectively.

About 25 percent of Indonesia’s output of almost 400 million tons last year had a calorific content below 4,000 kilocalories a kilogram, according to R. Sukhyar, the head of the energy and mineral ministry’s geology agency. The country’s total exports were 347 million tons in 2012, Deutsche Bank AG estimated in a May 9 report. It supplied 119 million tons, or 41 percent, of China’s imports, the Chinese customs data show.

Power Projects

Indonesia needs to spur the development of power plants to boost consumption amid China’s planned ban, Kamandanu said. Indonesia ships around 30 million to 40 million tons of low heating value coal to China every year and the ban could prompt miners to stop operations, he said.

“We have to speed up power-plant projects,” he said. “The important thing is we can still sell the coal.” A 1,000-megawatt plant can burn 4 million tons of low-quality coal while a utility with the same capacity can only burn 3 million tons of higher-quality fuel, he said.

Indonesia is trying to complete a program to add 10,000 megawatts of additional coal-fired generating capacity by 2014 as it seeks to sustain economic growth. About 4,520 megawatts of capacity was completed by the end of 2012 since the program began in 2006 amid difficulties in acquiring land and engineering, according to data from the energy and mineral resources ministry.

Utilities and factories in Indonesia may burn 85 million tons of coal this year, or 22 percent of the country’s output, according to data from the energy and mineral ministry.

To contact the reporter on this story: Fitri Wulandari in Jakarta at fwulandari@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net


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