Indonesia's thermal coal benchmark price rose to $63.93 per metric ton in September, continuing a five-month rally after bottoming out in May. (GA Photo/Mohammad Defrizal)

Surge in Coal Prices Buoys Miners' Shares


OCTOBER 08, 2016

Jakarta. A recovery in coal prices in recent months has buoyed shares of local coal companies and returned confidence to a sector that has long struggled with low demand.

Indonesia's thermal coal benchmark price rose to $63.93 per metric ton in September — its highest in 17 months — continuing a five-month rally after bottoming out in May, according to the latest data compiled by the Ministry of Energy and Mineral Resources.

China, traditionally Indonesia's main coal market, has capped its domestic coal mining output, forcing electricity producers to start importing coal once more. Limited stocks from the main exporters, such as Australia and Indonesia — due to a prolonged wet season — also stoked the commodity's price in the global market.

Against that setting, shares of Bumi Resources, Indonesia's largest coal producer, surged by as much as 23 percent this week after the Indonesia Stock Exchange (IDX) lifted a suspension on the company's shares on Wednesday.  The suspension began on June 30 after Bumi failed to submit its first-quarter financial report.

NH Korindo Securities head research analyst Reza Priyambada said positive sentiment from the commodity's price has buoyed even a debt-ridden company such as Bumi.

Shares of state-controlled miner Tambang Batubara Bukit Asam, have risen 70 percent in the past five months. Indo Tambangraya Megah, the local coal mining unit of Thailand's Banpu, rose 47 percent in the same period.

However, Reza warned that in the longer term, miners' share prices would depend on their own fundamental performance.

"It all depends on how the coal miners are making their next moves. For example, extending or renewing their coal contracts, or diversifying their businesses," Reza said.

Indonesia's coal production fell 14 percent to 241.1 million tons of oil equivalent last year compared to a year earlier, as demand from China and other markets decreased, according to the BP Statistical Review of World Energy 2016.

For coal producers, the power sector is another business alternative to mitigate their losses from last year's weak coal prices. The power sector is attracting several coal producers because the government wants to add 35,000 megawatts to the national power grid to boost investment.

Adaro Energy, whose shares surged 164 percent so far this year, diversified its business from coal production to power generation. Construction of the company's 2,000-megawatt coal-fired power plant in Batang, Central Java, has finally started and it is expected to generate $80 million per month for the consortium that built and operates it, when it starts operations in 2020.

Coal will remain the main supply for power plants, which will eventually boost domestic consumption of the resource and provide long-term benefits to miners and producers.

Oil and gas giant British Petroleum also noted that coal consumption in Indonesia — now the eight-largest coal user in the world — will continue to grow as most of the country's power under President Joko "Jokowi" Widodo's 35,000-megawatt program would come from coal.

Additional reporting by Reuters