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Jakarta Post

Indonesian coal miners to cut 50 million tons of production due to weak prices

  • Norman Harsono
    Norman Harsono

    The Jakarta Post

Jakarta   /   Fri, July 3, 2020   /   08:14 am
Indonesian coal miners to cut 50 million tons of production due to weak prices Heavy equipment owned by PT Berau Coal is used for coal mining activities at an East Kalimantan mining site, Binungan. (JP/Indra Harsaputra )

Miners in Indonesia, the world’s top coal exporting country, have decided to cut domestic production by 50 million tons this year in their bid to increase global coal prices, which have been falling during the health crisis.

The Indonesian Coal Mining Association (APBI) has forecast coal production to fall short by 11 percent to 530 million metric tons this year. However, members are planning to further lower production to 480 million tons due to weak prices, the APBI announced on Wednesday.

Indonesia’s benchmark coal price (HBA) hit US$52,98 per ton in June, the lowest price in the last four years, according to Energy and Mineral Resources Ministry data.

“The [low price] trend will continue amid concerns over a possible second wave of COVID-19,” wrote APBI chairman Pandu Sjahrir in a statement on Wednesday.

A possible second wave is expected to lower coal demand in major coal exporting markets such as China, Japan, India and South Korea. Coal is mainly used to generate electricity, the demand of which will sink as factories and businesses close shop during COVID-19 lockdowns.

As the world’s largest coal producer, dry fuel makes up 14 percent of Indonesian exports, Statistics Indonesia (BPS) data show. Exports cooled 28.95 percent year-on-year (yoy) in May to $10.53 billion, the lowest since July 2016, partially due to falling coal exports.

“This will of course have an impact on government revenue and national production targets,” the association stated.

The energy ministry expects to earn Rp 35.93 trillion in non-tax state revenue (PNBP) from coal and mineral miners this year, 41 percent of which had been achieved as of early June. The mining sector is a major contributor to state coffers in Indonesia.

The revenue target assumes that Indonesia will produce 550 million tons of coal this year. Forty-two percent of the target had been met as of May.

“If we compare the numbers, it feels like the 550 [million tons] target can be met,” energy ministry coal director Sujatmiko said on Tuesday, a day before the APBI’s announcement.

He was not immediately available for comment over the announced production cut.

The government and coal miners were focusing on redirecting sales into South Asian and Southeast Asian markets to make up for lost sales in China and India, he added, during a webinar hosted by green energy nonprofit CERAH.

“Expecting these countries to fill in the shortage to China is, of course, not a short-term or long-term plan. We cannot even expect much from 2020. But these are new markets we can secure,” said APBI executive director Hendra Sinadia at the webinar.

A recent report calculated that only six of 11 big coal companies in Indonesia can remain profitable given that coal prices have lingered at around $50 per ton in 2020.

The unprofitable or “cash flow negative” companies are PT Bumi Resources, PT ABM Investama, PT Bukit Asam, PT Toba Bara Sejahtra and PT Harum Energy and Geo Energy Resources Ltd, according to the report by the Institute for Energy Economics and Finance Analysis (IEEFA).

However, PT Bumi Resources, Indonesia’s most productive coal miner, did not plan to cut production levels, said Bumi corporate secretary Dileep Srivastava.

He noted the company could produce between 88 million and 95 million tons of coal this year.

“Our production and sales are on track at normal levels presently, in spite of the present challenges,” he said.