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Indonesia coal miners likely to gain from rising prices, supply disruptions

COAL mining companies in Indonesia are likely to post strong earnings growth in 2022 amid rising coal prices and a supply disruption from the ongoing conflict in Ukraine, said DBS Group Research.

In a report on Friday (Apr 8), analyst William Simadiputra raised his average estimates for the Newcastle coal price index to US$150 per tonne in 2022 and US$125 per tonne in 2023, to reflect strong coal prices in the first quarter resulting from Indonesia's coal export ban, the Ukraine conflict, as well as already-elevated prices caused by China's 2021 power crunch.

The higher coal prices are likely supported by China resuming coal imports in 2022, as domestic production will unlikely close the supply gap that is easily covered by coal imports, the analyst said.

China is also unlikely to ramp up its production quickly, with coal import likely the best alternative energy procurement especially with the risk of war and prolonged high gas prices. He noted, however, that recent lockdowns may reduce imports in the short term as economic activities are temporarily halted.

Simadiputra also expects coal prices to stay elevated as further production volume expansion in 2022 is likely to be limited.

Indonesia's coal production will likely grow on improving weather from the second quarter, thus addressing current coal shortages. However, the analyst expects only existing coal mining companies can raise production flexibly due to their strong capital position. Also, a long waiting time for equipment will likely slow down the ramp up.