Tito Summa Siahaan
Coal miners, feeling the effects of a global slowdown in demand for the fossil fuel, are likely to curtail production to maintain profitability, some analysts say.
“The outlook [for the coal business] is relatively strong,” said Frederick Daniel Tanggela, a mining analyst with Trimegah Sekuritas in Jakarta.
The excess supply in coal was a result of last year’s 31 percent increase in exports from the United States, as the world’s largest economy consumed less coal due to the mild winter, a slow economic recovery and cheaper gas prices, he said in a telephone interview on Friday.
Slow economic growth in China and India, the two biggest buyers of Indonesian coal, has also reduced demand, and that has helped to increase global supply of coal.
Even though the Newcastle Coal Price Index — a benchmark for the Asia-Pacific region — increased recently, Tanggela said the price was unlikely to return to its peak price in the near future. He said a decrease in coal production should counterbalance the excess in supply.
Coal companies with low debt and high Ebitda (earnings before interest, tax, depreciation and amortization) margins will remain attractive, Tanggela said. State-controlled Bukit Asam was his top pick, while the only sell rating was for Bumi Resources.
Investors have responded to the grim outlook by sending shares in Indonesian coal miners down. Bumi Resources, the country’s biggest coal producer, has fallen 48 percent this year, compared to the benchmark Jakarta Composite Index’s 8.4 percent gain.
Adaro Energy, the second-largest coal miner, has lost 12 percent. Bukit Asam has fallen 14 percent. The Jakarta Mining Index, comprised mostly of coal producers, has plunged 20 percent.
Cameron Tough, head of investor relations at Adaro, said on Aug. 3 that the recent weakness in the coal price was due to excess supply rather than a lack of demand. The company reduced its annual production forecast to between 48 million and 51 million metric tons of coal, from an initial estimate of 50 million to 53 million tons.
Irwan Budiarto, an analyst at Bahana Securities, said in a note last week that Adaro’s production might decline this year from its estimate of 51.6 million tons, since first-half output hit 23 million tons. The broker has kept its recommendation on Adaro’s stock at “reduce.”
Dileep Srivastava, a director at Bumi Resources, said on Sunday that the company was not changing its forecast on this year’s production of about 75 million tons. In any year it mines 40 to 45 percent of its coal in the first half and the remainder in the second half, he said.
The company last month reported that its coal production hit 32.5 million tons in the January-June period, up 8.6 percent from a year earlier.
“So, we are within norm and effort is to exceed production significantly in 2012 and as close to target as possible,” Srivastava said by e-mail. “However, our challenge is the poor weather and our ability to maximize the coal mined in a quality mix that is tuned to market need.”
Adaro and Bumi Resources will turn in first-half results by the end of the month.
Indonesia’s coal production was 150 million tons in the first half this year, according to the Energy and Mineral Resources Ministry. That was less than half the amount of last year’s output of 371 million tons, based on ministry data.
The government set the coal benchmark price at $84.65 for August, down 28 percent from a year earlier.
Additional reporting by Muhamad Al Azhari & Francezka Nangoy