Miners set to act on price drop
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Indonesian coal miners are moving to act following a prolonged decline of commodity prices by cutting down production to limit the impact on finances as well as to balance supply and demand amid the global economic slowdown.
Indonesia’s second-largest thermal coal producer, PT Adaro Energy, announced that it had revised its annual production target to between 48 and 50 million metric tons this year from its previous target of 50 to 53 million tons. The company cited difficult market conditions as cause for the move.
“Despite the revision, the new goal remains in the range of previous target. It is still possible that we will produce up to 51 million tons by the end of the year,” Adaro corporate secretary, Devindra Ratzarwin, said, adding that his company had produced 23 million tons in the year’s first half.
Separately, in an announcement published on its website, London-listed Bumi Plc said its subsidiary PT Berau Coal Energy was expected to produce between 20 and 22 million tons of coal this year, a lower figure compared to an original forecast of 23 million tons. However, Bumi Plc said its other subsidiary, PT Bumi Resources, would maintain its target to produce 75 million tons of coal this year.
Bumi Plc said the revision of Berau’s production target was primarily due to the continuing impact of rainfall during the first quarter and into the second quarter.
Bumi Plc holds an 85 percent stake in the fifth-largest coal producer, PT Berau Coal Energy, and 29.2 percent in PT Bumi Resources, both of which are listed on the Indonesia Stock Exchange (IDX). Berau is estimated to have produced 9.8 million tons of coal in the first half of the year, while Bumi Resources produced 32.5 million tons, including production by its subsidiary, PT Kaltim Prima Coal.
Other coal producers with high exposure to exports are also expected to announce production cuts.
Pri Agung Rakhmanto, executive director of the ReforMiner Institute, said that coal prices would not likely reach US$100 per ton again this year. He predicted that the price would hover at between $85 and $90 per ton.
“Everything will go back to fundamentals, which is global economic growth. The demand is there, but not as high as expected, due to the impact of the European crisis on China, one of the world’s largest coal consumers,” Pri Agung said.
According to Pri Agung, it would be hard to affect the global coal price index by reducing production.
“There are too many players. A company reducing production will not make much of an impact on
coal prices unless the company is very large or the action is implemented cumulatively. Moreover, the price of coal has a correlation with other commodities,” Pri Agung said.
Indonesia has already witnessed a failed attempt to affect the price of another commodity, tin. In a move to boost prices, several tin producers announced that they would halt production, as the falling tin price no longer covered their production costs.
Indonesia, the world’s second-largest coal producer after Australia, saw its national coal production reach 184 million tons in the first half of this year, or about 54 percent of a full year’s estimation of 340 million tons by year’s end. The first half figure was a 5 percent increase compared with the same
period last year.
About 74.4 percent of the coal produced in the first half of the year was delivered abroad, reaching 137 million metric tons, which was a 19 percent drop versus the same period in 2011.
Most coal miners sell their product based on long-term contracts. A prolonged contraction of prices, however, would curb contracts in the future.
Most contracts were signed at a time when prices were higher, and declining prices in recent months will likely hurt those companies’ prices for future contracts.
The Indonesia coal reference price (HBA), fell further this August to $84.65 per metric ton, declining by 3.4 percent compared to $87.56 in July. The HBA has fallen significantly since early this year, with its highest level reaching $112.87 per ton in March.