As difficult as it may be to swallow, business players in the coal-mining sector have to accept that conditions in 2015 will be as challenging as ever.
The Energy and Mineral Resources Ministry set the coal reference price (HBA) in May at $61.08 per ton, the lowest level since 2009. Among those hit by falling coal prices are commercial vehicle and heavy equipment businesses.
One company in the field is Wahana Inti Selaras (WIS), Indomobil Group’s arm in the heavy equipment and mining business.
Through a number of subsidiaries, the company handles Volvo and Renault trucks, Volvo construction equipment, Manitou heavy equipment, Kalmar cargo handling solutions, Italgru offshore and port cranes, and Zoomlion cranes.
Its clients are predominantly logistics companies and coal-hauling subcontractors, and at one point the coal-mining sector accounted for 60 percent of the company’s heavy equipment sales.
“We and our customers are undertaking the same steps during these difficult times, which is to cut operating costs and seek alternative revenue streams,” said Bambang Prijono, CEO of WIS. “Many of our customers are delaying the purchase of new equipment and repairs due to lowered production or price adjustments.”
Working in the heavy equipment business for 18 years and in the mining business for four years, Bambang experienced the financial crisis in 1997, 2008, and 2012, the effects of which he can still feel today. “The crisis now is quite different, where the decline occurs slowly but surely and is prolonged, and we do not know whether we’ve hit the bottom or not,” he said.
“Particularly in the coal-mining sector, I believe a natural selection is currently happening, and in time there will be a new equilibrium between demand and supply, so prices will return to a healthy and reasonable level.”
New opportunities abound
Despite the current unfavorable business condition, Bambang is very optimistic about the future.
“With the weakening of the mining business due to falling prices of mining commodities, we have diversified our product offering and businesses by providing a greater focus on other sectors which are still promising, including construction, agribusiness and the sale of port equipment,” said Bambang.
“Through our subsidiary Indo Utama Tractors (ITU), sales of port operations equipment such as Kalmar and Italgru have increased in the past two years.”
Another reason for Bambang to keep his chin up is the government’s plans to build a total of 35,000 MW of new power plants, 49 ports, dams and 7,000 km of roads in the next five years. Although considered ambitious by some, business players believe these plans are realistic, given that Indonesia’s infrastructure is very far behind other countries.
“In line with the government program in infrastructure development, the construction sector is a promising one,” said Bambang. “Food-related sectors such as agribusiness and agriculture will certainly survive in any condition because they involve basic needs.”
Identifying new opportunities, WIS recently established a new subsidiary, Prima Sarana Mustika (PSM), which will focus on the agribusiness sector as contractor and heavy equipment provider. “In general, companies that can survive in a situation like this are companies that have good management, strong cash flow, plenty of premium customers - key accounts - as well as competitive and high quality products.”
The article was first appear in GlobeAsia's August edition