Coal's recovery too good to resist for Indonesia, the world's biggest exporter

Coal's recovery too good to resist for Indonesia, the world's biggest
exporter

Indonesia will exceed its coal production target for another year as miners
cash in after prices recovered from a five-year collapse.

The world's biggest exporter will produce about 489 million metric tonnes
this year, 18% above the government-mandated target, according to energy
ministry forecasts. That's up from last year's output estimated at 434
million tonnes and would be at least the third year in a row that the nation
has produced more than it planned.

Southeast Asia's largest economy has been trying to cap its coal output in
an attempt to preserve resources for future generations of Indonesians.
That's proving a challenge as resurgent prices tempt producers to maximize
output from new and existing mines to meet demand at home and abroad.

"Actual annual production will generally be higher than targeted because
prices are now higher," Bambang Gatot Ariyono, the director general of coal
and mineral resources at the energy and mineral resources ministry, said
Jan. 5. "It compensates for previous losses."

Coal more than doubled in 2016 after tumbling to the lowest in almost a
decade as efforts by China to reduce excess supply pushed prices higher and
faster than anyone anticipated. The recovery is breathing new life into an
industry hammered by overcapacity and shrinking demand, reviving share
prices of miners around the world, from Indonesia's PT Bumi Resources to
Australia's Whitehaven Coal Ltd.

A gauge of Indonesian mining companies surged more than 70% in 2016,
dwarfing the 15% advance in the Jakarta Composite index. The gauge slumped
41% in 2015, its worst year since 2008.

Production outlook

Bumi Resources, Indonesia's biggest coal producer, expects to mine more than
90 million tonnes this year, compared with 86 million tonnes in 2016,
corporate secretary Dileep Srivastava said in an e-mail. PT Adaro Energy,
operator of the country's largest mine, didn't provide estimates for 2017
but the company said in e-mail that it "will continue to maintain production
discipline and improve efficiency to grow the company sustainably in the
long term."

The government isn't willing to force companies to curtail output from newly
constructed mines after granting them production licenses, according Ariyono
from the energy ministry. "We can't tell them to stop," he said.

A growing share of Indonesia's output is remaining in the country, with 25%
of supply this year forecast to be consumed domestically, up from 21% in
2016 and 19 percent in 2015, according to energy ministry estimates. The
government sees local demand at 121 million tons this year, up from an
estimated 91 million tonnes in 2016, according to the data.

Still, Indonesia exports most of what it mines, with China, India, South
Korea, and Japan among its biggest customers. With international prices now
showing signs of peaking, Indonesia isn't being complacent about the
longevity of the rally, according to the country's coal mining association.

China balance

"Producers view that current high prices can't be used as future reference,"
said Hendra Sinadia, deputy executive director of the Indonesian Coal Mining
Association.

Thermal coal in Indonesia climbed for a seventh month to $101.69 a metric
ton in December, the highest since 2012 and the longest run of gains in data
compiled by Bloomberg since 2009. Australia's Newcastle coal more than
doubled last year to almost $110 a ton in November, before slipping to about
$84 this month.

China, which produces and consumes more than any other country on the
planet, has worked overtime to cool the market, reversing some output
restrictions and encouraging more production before winter. The nation's
output rose in November to the highest level in a year, according to the
National Bureau of Statistics.

"China will re-balance between cutting production and meeting domestic
demand," Sinadia said. "They are doing this right now."

Indonesia's miners are also trying to wean themselves off China, with
exports shrinking over the past three years. The nation accounted for almost
20 percent of Indonesia's total overseas shipments in 2015, down from almost
31% in 2013, according to data from the state statistics agency. Over the
same period, India's coal purchases rose to 34 percent of Indonesia's
exports, from 28% in 2013, the data show.

Diversified exposure

"When Bumi realized that China growth was showing signs of a slow down three
to four years ago we proactively diversified into other markets such as
India and developed a few new ones like Philippines," Bumi Resources's
Srivastava said. "We prefer not to be overly exposed in any single market
but to have a diversified market exposure."

Indonesia's exports to China may fall again in 2017 as rising domestic
output erodes its appetite for imports, according to Michelle Leung, a Hong
Kong-based analyst at Bloomberg Intelligence.

"Exports will depend on the level of demand in the seaborne market," said
Rory Simington, principal coal analyst at Wood Mackenzie Ltd. "Indonesian
producers have the flexibility to satisfy demand from China, India and rest
of the seaborne market, provided the price is right."

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Link to Original Article:
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ood-to-resist-for-Indonesia-the-world.html

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John Diecker
APT Consulting Group Co., Ltd.

www.aptthailand.com