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Jakarta Post

Coal giants Bukit Asam, Adaro book profit falls on weak commodity prices

  • Norman Harsono

    The Jakarta Post

Jakarta   /   Thu, March 5, 2020   /   01:37 pm
Coal giants Bukit Asam, Adaro book profit falls on weak commodity prices A field officer monitors heavy equipment at a PT Bukit Asam mining site. (Courtesy of/www.ptba.co.id)

A fall in global coal prices as a result of lower demand from main coal buyer China hit the bottom lines of mining heavyweights PT Bukit Asam and PT Adaro Energy in 2019.

Bukit Asam’s profit slumped 19.1 percent year-on-year (yoy) to Rp 4.06 trillion (US$286.78 million) in 2019, while Adaro’s profit slumped 3.2 percent yoy to $404.19 million in the same year. The companies’ profits declined as lower commodity prices had offset their higher sales volumes, which had grown 13 percent and 9 percent, respectively.

“We, in the coal industry, are very sensitive to prices,” said Bukit Asam commerce director Adib Ubaidillah at a press conference in Jakarta on Wednesday (4/3).

“We expect 2020 to be a challenging year and we will continue focusing on improving operational performance, mitigating costs and improving efficiency,” said Adaro chief executive officer Garibaldi Thohir in a statement on Wednesday.

Read also: Indonesia tightens grip on nickel and coal exports

Indonesia's coal price reference (HBAfell 28.2 percent over the course of last year to $66.3 per ton in December 2019 due to declining coal demand in China, Europe and the United States.

Indonesian miners say prices were also affected by the government’s domestic market obligation (DMO) policy that required miners to sell a quarter of their production domestically at $70 per ton, which was below market prices in the first half of 2019.

Such miners potentially face another challenging period in 2020 as the Southeast Asian country officially extended in January its DMO policy for another year and as Chinese factories remained closed for a third consecutive month due to the novel coronavirus epidemic. China’s industry accounts for 70 percent of electricity consumption in the world’s second-largest economy.

“Weaker power demand and weaker industrial activity [in China] inevitably impacted both domestic production and consumption of thermal coal,” wrote market analyst Gavin Thompson, energy vice chairman for Asia Pacific at consultancy Wood Mackenzie, in a media newsletter on Feb. 4.

“Imports are also expected to slow, with reports of Indonesian producers already being asked to delay loadings. The effect on prices though is likely to be muted; prices fell so much through 2019 that globally many producers are already operating at negative margins.”

Read also: Coal miner Bukit Asam to invest Rp 4t this year, mostly on infrastructure

Bukit Asam’s revenues increased 2.9 percent yoy to Rp 21.79 trillion in 2019. The increase was, however, offset by a sharper 12.4 percent increase in production costs to Rp 14.18 trillion.

Bukit Asam stocks, traded on the Indonesia Stock Exchange (IDX) as PTBA, rose 4.22 percent on Wednesday despite reports of a decline in the company’s profit, higher than the increase in the benchmark Jakarta Composite Index (JCI), which gained 2.38 percent.

Bukit Asam president director Arviyan Arifin said the company would aim to be more efficient in all its activities to reduce costs and improve profit margin. He also hoped that prices would also improve in the global market despite the coronavirus outbreak.

 “We are optimistic that in 2020, hopefully, prices will not be as bad as in 2019,” he said.

Furthermore, the coal miner has mitigated losses from a shrinking Chinese market since 2017 by expanding its exports to India, Southeast Asia and Taiwan, among other new markets, said Adib.

Meanwhile, Adaro’s financial report shows that sales volume increased 9 percent yoy to 59.19 million tons in 2019. Yet, the company’s revenue dropped 4 percent yoy to $3.46 billion due to falling commodity prices. The miner’s operational costs also rose 3 percent yoy to $2.49 billion.

Adaro stocks, traded on the Indonesian bourse as ADRO, rose 5.7 percent on Wednesday, above the JCI’s 2.38 percent.