Moody’s Sees More Growth For Indonesian Coal Miners

Coal produced by Berau Coal being loaded onto a ship in East Kalimantan last year. Moody’s says the future is bright for Indonesia’s coal mining industry, with demand rising in China and India. (Reuters Photo/Yusuf Ahmad)

Francezka Nangoy, Jakarta Globe

Indonesia’s coal mining industry looks set to grow despite an uncertain global economic outlook, according to Moody’s ratings agency.

Simon Wong, a vice president and senior analyst at Moody’s, said the planned construction of power plants across the region, Indonesia’s connections to the energy sector in the Asia Pacific, strong liquidity and an improved debt profile would support the domestic industry’s growth.

Utility companies in Indonesia, China and India are building more power plants that use thermal coal to satisfy the increasing demand for power in the region, which will in turn help keep coal prices high, Wong said.

“Indonesia’s coal miners have accelerated their strategies of vertical integration for the purposes of enhancing control over pit-to-port operations, operating efficiency and cost control,” he said in a statement.

Coal companies are looking to increase exploration for new sites while increasing production capacity at existing mines.

Wong said these strengths outweighed the possible risk that may come from the “uncertainty surrounding the global economy.”

He added, however, that there was still a risk of investing in coal in Indonesia, due to geographical factors, mixed product quality and still-evolving mining laws.

President Susilo Bambang Yudhoyono announced in March that unrefined coal exports would be banned from 2014, leading to what some observers have described as the “Indonesian coal rush.”

If the ban is implemented, miners will have to invest in processing facilities in Indonesia. The vast majority of coal mined in Indonesia at present is exported in its raw form and refined overseas.

Bob Kamandanu, chairman of the Indonesian Coal Mining Association, said coal production would remain stable next year, but he expected a slight decrease in prices. He forecast coal would cost $100 to $110 per ton next year, lower than the average price this year of $110 to $120 a ton.

He said the association maintained its national coal production target of 380 million tons next year, up from the 360 million ton target for this year.

The coal mining industry has been criticized recently by communities living near mining concessions. There have been claims of rights abuses, including forced displacement and environmental destruction to make way for mining projects that communities say rarely benefit them.

Indonesia is the world’s top exporter of thermal coal, most of which goes to China and India.