Francezka Nangoy & Faisal Maliki Baskora
Declining coal prices are dragging shares of coal miners lower, and analysts have suggested investors refrain from making large bets on concern that the commodity will decline further amid a slowdown in global economic growth.
Reza Priyambadha, an analyst at Indosurya Asset Management, said investors should refrain from buying coal mining stocks because the downward trend, caused by oversupply, could last until next year.
“Don’t be aggressive,” he said. “If you want to invest in coal, buy the stocks gradually and invest in the long term.”
Bumi Resources, the country’s largest listed coal miner, dropped 9.1 percent on Monday, bringing its decline to 49 percent this year — well below the year-to-date gain of 0.9 percent for the benchmark stock measure Jakarta Composite Index.
Meanwhile, rival Adaro Energy has fallen 25 percent this year, Harum Energy has lost 21 percent and Borneo Lumbung Energy & Metal has tumbled 35 percent.
Reza said the slowing global economy had caused major industries, including in China, to cut back on production, reducing demand for fuel from coal and natural gas. Exploration and mining activities have increased, causing oversupply.
The New York Times reported during the weekend that electricity-generating facilities had record amounts of excess coal stockpiles because power plants were burning less coal due to declining demand for power from factories sitting idle.
Stockpiles in Qinhuangdao, China, the delivery point for half of domestic seaborne supplies, are 29 percent higher than this time last year, Bloomberg reported on Monday, citing a report from the China Coal Transport and Distribution Association.
That has been reflected in prices. Reuters reported on Friday that Australia’s Newcastle spot index for the week closed at $84.45 per ton on Thursday, down from $85.23 the previous week, data provided by online trading platform globalCOAL showed.
Companies tend to have long-term contracts with buyers. The 20 percent drop in coal prices this year will most likely mean lower earnings, and some analysts are factoring in slower earnings growth.
Adaro’s net income will probably increase by 3.6 percent this year, according to Bloomberg data, after the company’s profit more than doubled in 2011 to $552 million from a year before.
Borneo Lumbung Energy & Metal’s earnings may drop by 4.6 percent this year, after its profit surged to Rp 1.83 trillion ($914 million) in 2011 from Rp 348.9 billion in 2010. Harum Energy’s profit growth may slow to 26 percent this year from 78 percent in 2011.
Still, Bumi Resources’ net income may jump 67 percent to $367.4 million this year, after gaining just 6.8 percent in 2011.
“Coal prices are depressed somewhat, but we are not impacted significantly because we contract annually,” Dileep Srivastava, a director at Bumi Resources, said in an e-mail. “The fall is also seasonal, but demand usually picks up as winter approaches. We expect this year to be no different.”
Bumi can sell all its production of 75 million tons at more than $85 per ton, and that the price may rise back to more than $100 in the fourth quarter, he said.
“Investors are worried about whether coal companies can survive,” Reza said. “The answer is, yes, they can survive because most of the coal companies have secured long-term contracts … which will help them survive this coal price drop.”
Coal companies Adaro, Indo Tambangraya Megah, Harum Energy and Resource Alam Indonesia have seen more stable stock movement than other than their peers in the sector.
Reza advised staying away from Bumi Resources because, aside from the downward trend in coal stocks, the company had internal problems in management.
“The outlook for coal is still uncertain,” he said. “I don’t think it will reach $100 per ton any time soon. Probably next year it can return [to $100 per ton]. It all depends on the world economic recovery.”
Indonesia is the world’s second-biggest shipper of thermal coal, with 20.8 billion metric tons of proven coal reserves, according to the Energy and Mineral Resources Ministry.
“When the coal price is down, earnings should be lower, too,” said Pri Agung Rakhmanto, an analyst at the Jakarta-based Reforminer Institute, an independent oil and energy research group.
“It’s too early to say” how long China’s slowdown is going to last, he added
The price of coal is also linked to the price of crude oil, Pri Agung said, and oil has been falling because of concerns that the global economy will slow further should China’s growth falter.
Crude oil for the one-month forward contract in New York has fallen 20 percent this year.
“The concern is connected to the oil price decline and coal because China is one of the biggest consumers of the commodity,” Pri Agung said.
“We expect the oil price to be about 10 percent to 15 percent lower than last year’s, and the coal price should mirror that, because coal is its substitute.
“When the global economy recovers, China’s economy should, too, and that will lift the oil and coal prices.”