Indonesia’s coal downturn: Indonesia to export 370 mln tons of coal in 2016 from 450 mln in 2012

Ido Hutabarat, Chairman of Indonesian Mining Association talks about the downturn in Indonesian coal industry.

If I am not mistaken, in coal we achieved around 450 million tons production in year 2012, when the coal price was above 100 dollars. At that time, we produced the coal from the lowest quality to the highest. At that time, the market was booming. Indonesia already had capacity around 450 million tons. But after 2012, the price started going down, and is now around 50 dollars.  The production is already going down to less than 400. Possibly this year, it will be around 370 for export market.

The quantity is going down, but are you digging the highest grade coal?

For big companies, it would be KPC, Arutmin, Inomin Coal, Bayan and some from ABK. Some of this is small IUP to produce the high CV coal. Most of the coal production now is the medium and the low CV coal, which is the biggest port of Indonesia.  And why it that attractive? Because they are using the low CV coal, so the consumption of domestic now is 70 million. It will also increase with the program of the government of 35,000 megawatt, which is around 22,000, is the coal. But the 22,000 megawatt means coal is about 75 million tons additional per year. You can imagine the consumption of coal in the next 50 years. This will make the coal industry initially very attractive.

Is the company using coal to attract investments?

I do not think it is really the strategy, because most of the coal investor are not also mineral investors. For the coal investor, I think the foreign investment is already attractive for the coal industry, because of the coal consumption in domestic. For the mineral industry, they are still a big player here, like Freeport, Newman, and Valley. Some of the big players are also in the exploration of minerals. The only obstacle now for the foreign investor is having to build their own smelter, because of the government low, number four.
Why is this an obstacle? For a new company like exploration company, they do not necessarily they deposit enough to build a smelter. For a company who has already completed the exploration stage and doing the feasibility study, they have to also produce and build the smelter. Because of the amount of the deposit for some companies, it is not attractive to build the smelter. For existing companies like Freeport, Newman and Valley, they already in Indonesia. When they need to build their smelter, they need the certainty that their contracts will be extended. Another problem is that the government will only start negotiation two years before the end of the contract of work. If you doing the feasibility study, you need to have a certainty of your contract, or whether you can continue production or not at least five years before.