Thermal coal returned to above US$100 per ton Monday. Global supply-demand dynamics might continue to support the commodity in the short-term, including the proposed lower output in Indonesia next year to preserve resources for the country\u2019s long-termm domestic consumption.<\/p>\n

Jhonson Pakpahan, director of mineral and coal revenues at ministry of energy and mineral resources, said Indonesia\u2019s coal production is set at 406 million tons next year, down from the planned 413 million tons this year.<\/p>\n

Disciplinary actions against holders of mining business permit (IUP), including termination of export-related facilities by ministry of trade, with liabilities to the State in arrears, might also affect the supply side even if others are allowed to produce more next year.<\/p>\n

As reported earlier, Ministry of trade has stopped export services for 2509 mining companies without clear and clean status starting today. This is part of disciplinary action initiated by the Corruption Eradication Commssion (KPK) in the mining industry. Next in line will affect those with liabilities to the State in the form of royalties and other taxes.<\/p>\n

Bear also in mind that weather issues have led to lower output in some major miners this year. United Tractors, for example, sold only 5.35 million tons of own coal in the first 10 months of 2017, down from 6.07 million tons in the same period last year. Pamapersada Nusantara, the largest contractor, produced only 92.9 million tons in the period, grew slightly from 88.8 million tons in the same period last year.<\/p>\n

China Factor<\/b>: Difficulties confronted by major miners in China to increase output amidst limited gas to support cleaner energy policies might also support thermal coal. China Coal Energy Co Ltd, one of major domestic miners, for example, produced only 6.12 million tons last month, fell 10.5% year-on-year. Accordingly, this company\u2019s output in the first 11 months of 2017 declined by 5.9% to 70 million tons.<\/p>\n

China Shenhua Energy Co Ltd, meanwhile, produced 24.2 million tons only last month, down 6.2% year-on-year. Accordingly, Shenhua\u2019s output for the first 11 months of 2017 inched up 1.8% only to 269.3 million tons, while sales increased by 11.8% to 402.6 million tons. Most believe that the country\u2019s import remain high next year due to difficulties for domestic miners to grow output. Southwestern China’s Chongqing city has phased out 23.48 Mtpa coal overcapacity in the past two years, through closure of 354 mines, SXcoa.com<\/a> quoted Chongqing Daily on Monday. Phasing out of older and inefficient mines plus concerns surrounding stable gas supply for cleaner power plants will continue to support thermal coal in the short-term.<\/p>\n

US Factor<\/b>: US was initially expected to significantly affect seaborne market due to strong recovery in output in the first quarter. But, both output and export softened in the second quarter, further weakened in the third and fourth quarter. US export of steam coal reached 8.3 million tons only in the second quarter, fell 17.7% from the first quarter. US Energy Information Agency (EIA) is scheduled to release third quarter data in the first week of January 2018, but we believe export declined further to the fourth quarter because output returned to negative territory year-on-year in the past few months.<\/p>\n

Margins<\/b>: Profit margin of Indonesian coal miners, however, might be significantly affected by higher strip ratio in some mines and higher input costs, especially energy. Fuel, one of the largest cost component, has increased significantly alongside rally of crude oil. Pamapersada produced 10.5 million tons of coal in October, increased slightly from 10.1 million tons in the same month last year, but overburden removal jumped by 33% year-on-year. BUMA, another major contractor, produced 3.3 million tons in October, down slightly from the same month of 2016, while overburden removal increased by more than 10% year-on-year.<\/p>\n

Interesting, however, that Delta Dunia Makmur (DOID), parent of mining contractor BUMA, sets aside US$180 million to US$190 million for capital expenditures (capex) next year, mainly to procure new equipments. This is pretty aggressive because in the first nine months of 2017, DOID spent US$94.4 million only for acquisition of fixed assets.<\/p>\n

DISCLAIMER: NO POSITION IN STOCKS MENTIONED IN THIS ARTICLE<\/p>\n","protected":false},"excerpt":{"rendered":"

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