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Fitch warns of Asia-Pacific thermal coal oversupply

Fitch Ratings in a statement said that the Asia-Pacific thermal coal market will remain oversupplied during the next 12 months since steady production practices have failed to adjust to weaker global demand.

The credit ratings agency said that as major Chinese coal producers cut prices to compete for market share and stifle domestic demand for overseas shipments, international coal prices are expected go down.

In its H213 APAC Thermal Coal Dashboard, Fitch also said that production cuts are likely to take place because a substantial amount of both Indonesia’s and Australia’s coal output is being sold below cost.

Indonesia produced almost 100 million tonne of coal in the Q1 of 2013, and almost 80% was exported to major markets such as China and India while the rest was primarily used to generate electricity.

Officials said that the country is aiming to churn out 391 million tonne of coal, mostly thermal, this year, or slightly more than the 386 million tonne produced last year.

The Indonesian government is planning to raise coal royalties for holders of mining business permits to 13.5%, equal to the current rate for works holders’ contracts. It is also seeking to introduce an export tax with the intention of securing future energy sources for Indonesia.

The Indonesian Coal Producers Association, however, has opposed the plan, saying that it would result in increased illegal mining activities, losses in state revenue and operations stoppages.

According to industry data, Indonesia’s coal reserves are estimated at 20 billion tonne. Australia possesses around 76 billion tons of coal reserves, while China’s reserves stand at around 115 billion tons.

Source www.thejakartaglobe.com