Coal Mining Indonesia: Rising Output in 2018 on High, Stable Price

26 June 2018

Coal Mining Indonesia: Rising Output in 2018 on High, Stable Price

This year's coal production in Indonesia is likely to top last year's figure of 461 million tons. In fact, coal production in 2018 may also exceed the production quota that was set by the Indonesian government as the nation's coal miners are eager to boost coal production amid stronger coal prices. Starting from 2015 coal prices have been in an upward trend; a trend that is continuing to date.

Through the Energy and Mineral Resources Ministry the Indonesian government targets a total coal production figure of 485 million tons in full-year 2018. Key reason why the government wants to limit coal production is to safeguard enough supplies for future use, especially for domestic use (in coal-fired power plants).

However, Bambang Gatot, Director General for Coal and Minerals at the Energy Ministry, said he would not be surprised to see actual coal production exceeding the quota this year, particularly as there are many Mining Business License (IUP)-holders on Kalimantan and Sumatra who are eager to generate profit after experiencing tough times in recent years. Moreover, it is not rare at all for coal miners to not follow the government's coal production quota.

Meanwhile, the government's 2018 coal production quota is actually much higher than the target that was set in Indonesia's National Medium Term Development Plan (RPJMN) 2015-2019. In the RPJMN 2015-2019 the government targets coal production at 406 million tons in 2018, followed by 400 million tons in 2019. The rapidly recovering coal price, however, made it basically impossible for authorities to push coal production down to those levels.

Moreover, the government is not too strict in curbing companies' coal output. Currently, the only strategy it uses to limit coal output is by disapproving mining companies' annual Work Plan and Budget (in Indonesian: Rencana Kerja dan Anggaran Biaya, or RKAB). Still, Gatot said that - if the government would not intervene at all - then Indonesia's total coal production would probably touch 600 million tons per year.

Meanwhile, those domestic coal miners that supply at least 25 percent of their output to the domestic market - under the domestic market obligation (DMO) program (at a fixed uncompetitive price of USD $70 per ton) - are allowed to exceed the production target (set in their RKAB) by 10 percent.

Hendra Sinadia, Executive Director of the Indonesian Coal Mining Association (APBI), said coal production in Indonesia has actually declined in the first quarter of 2018 amid bad weather conditions and declining demand from China. However, he still expects coal production to touch a high figure in the remainder of the year on the back of the higher (and stable) coal price.

According to data from Indonesia's Energy and Mineral Resources Ministry, a total of 145 million tons of coal was produced in the January-May 2018 period. Exports reached 105 million tons, while 40 million tons were supplied to the domestic market.

Indonesia's benchmark thermal coal price (in Indonesian: Harga Batubara Acuan, or HBA) managed to rebound in June 2018 after falling in the two preceding months. The HBA, a monthly price that is determined by Indonesia's Energy and Mineral Resources Ministry (and which is based on several global and domestic indexes), was set at USD $96.61 per ton in June 2018, up from USD $89.53 in the preceding month.

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