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Jakarta Post

Coal miners have less room for cost cutting

  • Raras Cahyafitri

    The Jakarta Post

Nusa Dua, Bali   /   Wed, June 10, 2015   /  09:27 am

Indonesian coal mining companies are facing pressure on their operations as current low commodity prices and several changes in government policies have left them little room for cost-cutting programs.

When coal prices started to decline, mining companies said they would reduce costs partly by lowering the stripping ratio '€” the ratio of the volume of waste material that must be removed to get the coal '€” so that they could maintain their profits and continue operations. However, as prices keep declining, cutting costs no longer seems a viable option.

Based on a survey conducted by Coaltrans Asia for its 21st conference, most of the respondents said that Indonesian coal producers now only had very limited room to reduce costs before they reached a final option: closing their operations.

The respondents argued that coal mining contractors or service providers still had a margin to keep them in operation.

'€œMaybe slightly. [...] I think there is a limit [to which] it can be done,'€ Edwin Tsang, director and chief marketing officer of PT Adaro Indonesia, one of the country'€™s major coal producers, said during a session at the Coaltrans Asia conference on Tuesday.

Michael Soerijadji, marketing director of PT Adimitra Baratama Nusantara, meanwhile, mentioned other issues affecting local mining companies, such as changes in mine plans by the minerals and coal office as well as renegotiation of a number of coal contracts of work.

According to his estimations, the coal price could touch as low as US$50 per ton. Coal miners have been suffering due to the low coal price, caused by weakening demand particularly from China, which is the biggest coal consumer.

The Newcastle index, the benchmark of Asian thermal coal prices, was at around $57 per ton at the end of May, according to figures from Reuters. The price has dropped 11 percent this year and is already less than a half of its peak level of around $130 per ton in 2011.

During the January to April period of the year, Indonesia reported 130 million tons of coal production, declining by around 11 percent compared to the same period last year.

This year, the government is targeting that total coal output will reach 425 million tons, down from last year'€™s 458 million tons.

Indonesian Coal Mining Association (APBI) chairman Pandu Sjahrir estimated that this year, national output would likely be between 350 and 400 million tons. He also raised concerns that coal mining players were struggling with their costs.

'€œAt the current price, 50-60 percent of mining firms are selling coal below their cash costs. It means that the more they produce, the more they are in loss,'€ Pandu said.

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