T

he country'€™s major coal mining companies have reported significant drops in their revenues and profits during the first nine months of this year, as world thermal coal prices remained low.

Many of the coal miners boosted their sales volume during the January'€“September period but they were still unable to increase their revenues. As a result, they mostly posted sharp declines in profits, and some even booked losses.

Bayan Resources, for example, posted a massive drop in sales in the third quarter (Q3), which caused the company to suffer a net loss of US$26.98 million during the nine-month period. In the second quarter (Q2), the company was still in the black with net profits of $22.2 million.

The company did not disclose its average selling price during the first nine months of the year, but it acknowledged that the coal was sold 16 percent lower during the first six months compared to the same period last year.

The coal price in the Australian port of Newcastle, which is the benchmark for the world coal price, has fallen by around 16 percent year-to-date.

Some Indonesian coal producers, which mostly produce thermal coal, saw a 20 percent drop in their prices, financial reports showed.

State-owned Bukit Asam and the country'€™s largest coal producer, PT Bumi Resources, reported a decrease of around 22 percent in their selling prices.

The pressure of declining prices would likely continue as coal supplies remained high and demand low, research analyst with PT Samuel Sekuritas Indonesia, Yualdo Yudoprawiro, said in a report.

He cited several factors for ongoing low prices, including high coal supply from Indonesia, high inventory levels in China and the implementation of a coal import tax for low-calorie coal in China.

'€œOperating costs for Indonesian companies will also increase next year, particularly due to the increase in the strip ratio and higher fuel prices and company royalties,'€ he said.

The country'€™s Energy and Mineral Resources Ministry plans to increase the royalties miners
will have to pay from the current 5 to 7 percent of their net sales to 13.5 percent.

The new royalty rate will be applied to coal miners with mining contracts issued after 2009.

Yualdo said that most Indonesian miners were in long-term contracts with buyers, which made them unlikely to reduce production growth, leading to increased supplies in global markets.

Bukit Asam president director Milawarma said that the company expected to see a 25 percent increase in production volume next year. The company, which aims to produce 20 million tons of coal this year, reported 13 million tons were produced during the first nine months of the year.

Harum Energy expects no major change in its selling price in the fourth quarter (Q4) of the year as its coal sales are based on long-term contracts using prices formed in the third quarter.

'€œThe company has shipped all of its sales commitment for Q4 and is now actively selling for Q1 2014 while the window of opportunity for sales into the Chinese market is open. Prices in China have recently found a floor and will gradually increase as winter restocking is underway. Imports are once again increasing,'€ Harum said in its report.

Indonesia'€™s largest thermal coal producer, Bumi Resources, shared the same view. Bumi'€™s corporate secretary, Dileep Srivastava, said the company saw the upside of more sales to China due to a possible surge in the customary demand during the winter.

Bumi said it had not changed its sales and production rates this year of 74 million tons.

The company reported $377 million in net losses during the first nine months of the year, slightly smaller than the net losses during the same period last year. Despite its growing sales volume, the company said it was suffering from a declining selling price and interest burden.

Securities company Bahana Securities said in a report that there were increasing concerns over Bumi'€™s impending debts. Bumi recently said it would swap some of its assets to settle its debt to the China Investment Corporation (CIC).

'€œWhile the CIC debt will be swapped with Bumi assets, we have our concerns about Bumi'€™s financial performance going forward, as the swap will erode Bumi'€™s earnings. Despite the swap deal, BUMI has other debts that need to be repaid, especially short-term ones,'€ Bahana said.