Indonesia coal facing difficulties

According to analysts, Indonesian coal exports will be held back this year, diametric to the government’s plan to reduce a swelling trade deficit while keeping prices elevated.

Producers in the world’s largest shipper face order delays for up to 18 months as they are encountered with troubles in getting additional mining equipment, Pandu Sjahrir, chairman of the Indonesian Coal Mining Association, said. The slow demand in supply will probably shore up coal prices standing at about US$100 per tonne through the end of next year.

“Supply restriction is still quite real,” said Mr. Sjahrir, who’s also finance director at miner PT Toba Bara Sejahtra.

“It’ll be the end of 2019 before they can fulfill some of their orders today.”

This poses a challenge for the Indonesian government, which has actively containing a current-account deficit and bolster the currency that’s slumped to a twenty-year low since the 1997-98 Asian financial crisis. An upswing in coal prices and the bumper reserves in Indonesia make the commodity an ideal target in the government’s drive to stimulate exports and secure dollar earnings.

Major coal miners in Indonesia are being beset by difficulties acquiring additional mining equipment, said Shirley Zhang, an analyst at Wood Mackenzie Ltd.

“Upside for Indonesian coal exports from their current level is limited in the near term.”

Coal prices have picked up about 10% this year to stand a current average of US$105, the highest since 2011, amid resilient demand from China, the world’s biggest buyer. The forecast that prices will be supported at about US$100 for tension in supply has also been flagged by Australia miner New Hope Corp.

Indonesia has capped the coal output at 22 million tonnes for the rest of the year, about a fifth of the 100 million tonnes it was open to endorsing. Sjahrir said while an increase of about 30 million tonnes in the next six months might be possible, it would still be a relatively small amount compared with overall output.

Indonesia produced 461 million tonnes of coal in 2017 and exported about 389 million, versus 456.2 million tonnes and 370 million respectively a year earlier.Export proceeds are expected to come in at US$32 billion to US$35 billion this year.