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Higher costs for Indonesian coal production

Indonesia’s coal production costs have doubled over the past six years, as coal prices fall, many in the industry are left wondering how much higher can costs rise?

“As Indonesia’s mines move inland, costs will continue to rise and the added risk of government policies means cost control is the main challenge facing producer’s today,” said Rohan Kendall, a Senior Analyst with Wood McKenzie.

Kendall was speaking at the 18th annual Coaltrans Asia conference in Bali, Indonesia, where industry players gathered to consider key developments and changes in the industry.

The total cash costs in 2006 for a ton of coal stood at US$26, this year the cost more than doubled to $53 per ton. This is the fastest rise in costs of any coal exporting country.

One of the contributing factors in this price rise is the cost of diesel. Despite Indonesia having a good advantage over Australia with its numerous coastal regions, as coal producers go further inland, transportation costs will have to rise.

Kendall noted the complexity of building rail lines in the country, with haul roads often the preferred choice for transportation.

Indonesia is also expected to witness a surge in the number of coal mining employees. From 2012 to 2017, it is predicted there will be a 75% growth of employees in the industry.

Labour costs so far have remained low and this has always been one of the benefits for Indonesian coal mining. However, if such a large growth materialises this could lead to pressure to increase wages.

Rising costs come as coal prices are at a two-year low, but Michael Soerijadi, Vice President of Marketing at PT Adimitra Daratama Nusantara was confident at Coaltrans that, “coal prices will rise again as China’s demand grows and power producers return to using coal.”

Uncertainty also lies over future government regulations. The Indonesia government already enjoys one of the largest shares in the world at 20% of coal revenue.

While industry players watch the market closely, with so much uncertainty hanging over coal production, companies need to consider the potential impacts of rising costs and how they can minimise the effects.

This content is provided by Coaltrans Conferences for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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