Lower Coal Prices Hamper Production

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CEIC Indonesia Data Talk - May 21, 2014 - Falling coal prices have prompted some Indonesian coal producers to restrict or cease production; coal production declined to 189.24 million tons during 2013 from 231.02 million tons during the previous year. Decreased coal production has also been observed globally – most notably in Indonesia's regional neighbour, Australia – as producers struggle to slash costs amid poorer returns. Previously, an associated boom in the steel sector prompted high demand for coal – especially coking coal – prompting large-scale expansion in production. Indonesia, for one, saw coal production amounting to 351.46 million tons during 2011. Indonesia has large swathes of coal-producing regions including South Sumatera, South Kalimantan and East Kalimantan, as well as numerous smaller pockets of coal reserves on the islands of Sumatera, Lava, Kalimantan, Sulawesi and Papua. The impact of the aforementioned decline in coal production saw sharply reduced production from the state-owned PT Bukit Asam to 4.87 million tons during 2013 from 6.68 million tons in 2012. Similar trends were observed for many other coal producing contractors in Indonesia. Most notably, PT Adaro Indonesia, PT Kideco Jaya Agung and PT Arutmin Indonesia – the second, third and fourth largest producers during 2012 – saw production more than halved during 2013. PT Adaro's production declined to 7.77 million tons during 2013 from 33.87 million tons during the previous year, while PT Kideco Jaya Agung saw its production fall to 15.43 million tons from 31.63 million tons during the same period. Notwithstanding the overall decline in coal production, some coal producers stood out with increased or sustained production levels during 2013. Among them, PT Kaltim Prima Coal and PT Berau Coal produced 48.99 million tons and 19.71 million tons of coal respectively, rising from 37.58 million tons and 19.02 million tons over the same time period, to emerge as the largest and second largest coal producers in 2013. Weaker overall coal production was also reflected in poorer coal sales in Indonesia. Annual coal sales (inclusive of domestic sales and exports) declined for a second consecutive year in 2013 by 18.27% to 184.06 million tons; coal sales declined by 36.07% during 2012. Exports – which constitute the bulk of coal sales (approximately 80% as of 2013) – declined by 15.91% during the year. Stand-outs among Indonesia's coal producers were PT Kaltim Prima Coal and PT Berau Coal – which with increased coal production contrasting with the overall industry trend recorded modest to high growth in sales (of 31.25% and 3.52% respectively). Increasing demand for clean energy is a key factor depressing coal prices. Furthermore, the decline in global production has further dampened overall commodity prices – with reduced demand for coking coal coinciding with the poorer performance of steel production. The government has sought to stem further declines in coal prices through curbing production (at around 5% lower than the previous year) under the pretext of responding to environmental concerns over the use of coal (a non-renewable energy source). As a major coal producer, Indonesia's production curbs may see increased global coal prices, especially in conjunction with the uncertainties in Ukraine, another major global coal producer. By Yudha Prawira Google+ Author Profile - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog

21st May 2014 Lower Coal Prices Hamper Production

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