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Indonesia to cap coal production this year to support prices

Indonesia will cap coal output at about 400 million metric tons this year, 5 percent less than 2013’s level, to stem declining prices, the government said.

The country will enforce sanctions against companies that mine more coal that approved, according to Edi Prasodjo, Coal Business Director at the Energy and Mineral Resources Ministry. Penalties include suspensions and cuts in production allocations for the coming year, he said in an interview on Feb. 7.

Power-station coal at Australia’s Newcastle port, the benchmark price for Asia, dropped to $79.90 a ton on Jan. 31, according to IHS McCloskey, a U.K.-based data provider. The fuel averaged $83.95 a ton in 2013.

“We have been lax in applying the sanctions in the past years,” Prasodjo said. “We’re going to be stricter, otherwise prices will be volatile.”

Indonesia’s target is to mine 397 million tons of coal this year, down from 421 million last year, Energy and Mineral Resources Minister Jero Wacik said on Jan. 29. The ministry will also ask regional governments to control output from small companies holding mining business licenses known as Ijin Usaha Pertambangan, according to Prasodjo.

“We will work to ensure production won’t exceed 400 million tons,” he said.
Reduced Volume

The energy ministry is drafting regulations to control coal production, Prasodjo said, declining to provide more details. “One day, we have to control our production because coal is not a renewable resource.”

Miners won’t necessarily heed the target, according to Deutsche Bank AG. Some of the largest producers, including PT Bumi Resources (BUMI), PT Berau Coal Energy (BRAU) and state-owned coal miner PT Tambang Batubara Bukit Asam (PTBA), forecast production growth of more than 10 percent, the bank said in a report on Jan. 14.

Deutsche Bank predicts slower growth in coal exports. Indonesia may ship 435 million tons of the fuel this year, up about 3 percent from 424 million tons in 2013, it said.

Indonesia is still planning to introduce higher royalties for some miners this year, Prasodjo said. The government plans to increase coal royalties to 13.5 percent for miners, Finance Minister Chatib Basri said on June 24.

Source: Bloomberg