Session timeout

Sorry, your session timed out after a long time of inactivity. Please click OK and Sign In again.


Indonesia’s coal producers remain uncertain about the pricing prospects and domestic regulation impact

"It’s difficult to say where the market is heading to”, says Sreejith Chalakkal, Marketing Manager at PT Bayan Resources Tbk, “It has been low for a while but I am seeing it is picking up - specifically bituminous coal on a fixed price level"

Edwin Tsang, Marketing Director, PT Adaro does not expect further price cuts: “I think we have reached the bottom, the prices are now very close to production costs in Indonesia”. Michael Soerijadji, Marketing Director at PT Adimitra Baratama Nusantara believes that the prices shouldn’t be going lower as fuel prices remain high.

Despite this 40.3% of the audience, participating in the interactive polling said prices would continue to fall because suppliers continue to increase production to lower their marginal costs. 41.9% of the audience proposed that the floor will be reached soon as prices will remain depressed forcing supply cuts to prevent further price falls.

There is more uncertainty about the Chinese domestic prices: over 30% expect them to fall (by more than RMB20/mt) due to continuing excess domestic supply and competition from imports, and over 35% believe that the domestic prices depend on Shenhua whose pricing policies are often difficult to interpret and predict.

The audience appeared split on the potential for further cost cutting with the relative majority of 34.7% supposing that contractors / service providers still have margins which can be reduced as an alternative to the mines closing down. At the same time 21.3% believe that cutting strip ratios further would significantly reduce the life of mines and contractors/ service providers cannot reduce rates any further.

According to Michael Soerijadji, the low hanging fruit of cost cutting has been taken and it would be very hard to continue the cuts. Sreejith Chalakkal agreed, pointing out that the logistics side of production is pinned onto fuel prices which remain high.

Interestingly, 25.3% of the audience opted for the cynical response in the poll saying that everyone seems to be lying about their costs as they keep reducing prices and increasing production.

Indonesian coal suppliers also appear highly concerned about the Australian producers' take or pay obligations: over 43% of the audience believe that this is the key issue preventing supply /demand fundamentals from reacting to price. As it is cheaper for the Australian producers to keep up operations at a loss than close them down, their discounted higher CV export coal now overlaps in price with the Indonesian mid-CV coal and this further afflicts an otherwise tough market.

Apart from the supply/demand imbalance, Indonesian regulation remains the key challenge for coal producers. The proposed Regulation 32 and the KPK’s ("Corruption Eradication Commission") involvement in the renegotiation of CCoW's are aimed at boosting transparency and accountability in the industry and eradicating illegal mining, assured Edwin Tsang, Marketing Director at PT Adaro. However 25.5% of the audience expect small producers to be affected as coal gathering and sales by traders are not feasible, and 42.3% see the KPK involvement as nothing more than a publicity stunt.

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.

Related Insights