Can the Indonesian Coal Industry Survive COVID-19?
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Key Findings
While attention has been focused on the hefty downswings in the oil price caused by the collapse of demand from COVID-19 lockdowns, the coal price has been not insulated.
Starting from US$70/tonne in January, the Newcastle benchmark price (6,300 kcl) has retreated to US$58.33/tonne. Such a rapid fall in prices may not yet be an existential moment for the global coal industry, but it is a hard blow for Indonesia, the world’s largest coal exporter.
Executive Summary
In this report, IEEFA asks four primary questions to assess the impact of the falling coal price on the Indonesian coal sector:
- How did Indonesia’s listed coal producers perform last year in terms of cash profit per tonne?
- What is the cash breakeven benchmark price for these producers?
- How do rapid coal price declines and the COVID-19 operating environment make cost control difficult?
- At the current price of US$58.33/tonne how much in royalty payments is at risk?
The report concludes that the 11 listed coal producers in the sample face a truly onerous challenge in a pandemic-induced operating environment with its lockdowns and slumping prices. A long period of such circumstances could lead to even tougher questions from stakeholders about the companies’ viability and status as going concerns.
