June 26, 2020 (IEEFA Indonesia) – Weaker coal demand in China and India in the wake of the COVID-19 epidemic and compounded by policies favoring domestic coal industries will cause severe shortfalls in output for 10 major listed Indonesian coal producers in 2020, finds a new report from the Institute of Energy Economics and Financial Analysis (IEEFA).
“Lower volumes and near historically low prices will lead to much lower, if any, profits this year and possibly even next year,” says IEEFA energy financial analyst Ghee Peh, author of the report Indonesian Coal at the Mercy of the Dragon and Tiger.
Ghee notes that for 2020, Indonesian coal producers face the risk of falling sales volumes and lower prices.
“On volume, Indonesia’s coal sector relies on exports for more than three quarters of its demand,” says Ghee. “There is also a high concentration risk because more than 50% of its exports go to two key markets: China and India, both of which since the COVID-19 lockdown are limiting imports and boosting domestic coal production.”
Ghee forecasts that Indonesian coal exports to China will decline by 10% year-on-year, and to India by 20% year-on-year, but there is a risk of a larger fall for India.
“This will result in a demand shortfall for 2020 for the 10 big listed coal companies in our research sample which accounted for 66% of Indonesian coal exports in 2019,” says Ghee.
“A volume shortfall means these producers will be less able to cut costs and must either reduce output or secure new customers.”
Ghee notes the Ministry of Energy and Mineral Resources has stated that Indonesia wants to boost coal exports to Vietnam, Bangladesh, and Pakistan, but the outlook for those three markets is uneven, ruling out easy negotiations.
IEEFA found that Bumi Resources faces the largest sales shortfall by volume of 3.8 million tonnes, followed by Golden Energy and Resources, and Adaro at 2.5 million tonnes each.
As a percentage of total sales to both markets: Golden Energy and Resources faces the largest shortfall to both markets at 8.3%, followed by Harum (7.7%), and Geo Resources (6.6%).
“We estimate the 10 companies in our sample could face a 5% sales volume shortfall in 2020,” says Ghee. “However, the smaller-scale producers outside our sample may face an 11% sales volume shortfall in 2020. These producers have limited access to public debt and equity markets and may be less able to manage the financial impact of a decline in sales volume.”
Read the Report: Indonesian Coal at the Mercy of the Dragon and Tiger
Media Contact: Kate Finlayson ([email protected]) +61 418 254 237
Author Contact: Ghee Peh ([email protected])
The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy.