Adaro Energy president director Garibaldi Thohir said the company will soon finalize a deal for the acquisition of a 49 percent stake in Kestrel Mine in Central Queensland, Australia, from Rio Tinto. (Reuters Photo/Beawiharta)

Adaro Sees Stable Coal Prices in 2018

OCTOBER 22, 2017

Jakarta. The head of Adaro Energy, Indonesia's second-biggest coal miner by production, said he expects coal prices to be relatively stable in 2018.

In an interview, Garibaldi "Boy" Thohir also called for caution on the government's proposal to introduce a domestic coal price formula, among efforts to cut fuel costs for state electricity provider Perusahaan Listrik Negara (PLN) and consumers.

"If there's a difference in prices there could be leaks or smuggling," Boy said, referring to the risk of arbitrage between domestic and export prices. The scheme could also impact state revenues, he added.

"If prices are cheaper, royalties will decline. Income taxes would also be reduced," Boy said.

Coal production in Indonesia, the world's top thermal coal exporter, is expected to increase 5 percent in 2017 and 2018 from an estimated 440 million metric tons in 2016.

Domestic consumption is expected to reach 101 million tons this year. Coal is around 57 percent of the country's energy mix, although the government wants to roughly double the share of renewable energy by 2025.

Boy said domestic and Southeast Asian coal demand was "quite strong," but he did not expect big price fluctuations in 2018.

He referred to supply taking time to catch up as many mines had closed when prices were low, and said they would struggle to get new equipment and reopen quickly.

Spot cargo prices for thermal coal out of Australia's Newcastle port, which acts as an Asian benchmark, have largely been trading between $90 and $100 since July.

Boy said Adaro expected to keep its output "stable" in 2018, compared with targeted production of 52 million to 54 million tons in 2017.

Adaro is developing 2,200 megawatts of coal-fired power plants and aims to expand that to as much as 4,000 MW of capacity within five years, Boy said.

"We will need at least 20 million tons [a year] of our own coal for that," he said.

Boy said the company would also diversify into renewable energy and other areas, including water management.

"If Adaro doesn't follow the changes, it will be left behind," he said.