Indonesian producer body seeks deep coal output cuts
The Indonesian Coal Mining Association (APBI) has asked its members to cut output by 40mn-50mn t during June-December to prevent a freefall in prices. The group expects exports to fall by up to 60mn t in a "challenging" 2020 owing to a lull in demand from China and India.
The association has advised its 89 coal-producing members to work together and offer "disciplined" and "coordinated" supply cuts to improve margins in a presentation dated 24 June focused on prospects for Indonesian coal sales to the Indian market.
Indonesia's coal output in January-May fell by 8.5pc from a year earlier to 229.1mn t amid signs of an accelerating decline in monthly production, according to energy ministry data. The APBI said that January-May output was 20mn t lower on the year but that even steeper cuts will be needed.
The producers' call for more substantial output cuts could mark a turning point in their collective strategy after months of low prices, which saw many begin to produce at a loss. There is also a realisation that they have little option given the evaporation of demand. Indian coal imports could decline by 30mn t on the year in 2020, with 22mn-27mn t of this drop coming from Indonesia, the APBI said. India is Indonesia's second-biggest market for its thermal coal exports.
The association said the normally dominant share of Indonesian thermal coal in India's import mix had declined below 70pc in April. It also highlighted that the Indian government had launched several initiatives to curb coal imports. Indian power plants are sitting on coal stocks of 50mn t, while stocks at Indian ports are also "noticeably high", according to the APBI presentation. The weak macroeconomic outlook and fundamentals mean that India's coal demand could remain sluggish, necessitating Indonesian output cuts.
Indonesian coal exports for the full year could decline by as much as 50mn-60mn t against last year to 394mn-404mn t, the association said. This means that monthly shipments to the seaborne market will likely fall short of 2018 and 2019 throughout the remainder of this year (see chart).
At the same time, domestic Indonesian demand for coal is also projected to drop to 128mn-138mn t for 2020, lower than the country's earlier forecasts of 155mn t and actual consumption of 138mn t in 2019.
The association's calls to producers for output cuts were first issued near the start of this month, but the latest presentation is much more specific and urgent about the size of the required cuts.
The Indonesian thermal coal reference price (HBA) has tumbled as a result of weaker demand, with the June HBA price set at $52.98/t earlier this month, the lowest since July 2016. The price slide has already resulted in a mine supply response. Energy ministry statistics show an 11.5pc decline in April thermal coal exports and a sharper decline in May, although it is not clear if the May data is complete.
Several leading Indonesian coal producers said over the past six weeks that they are either reducing output this year or reviewing existing production targets, on expectations that demand and prices will be weakened by the Covid-19 pandemic.
At the start of this month, the country's largest coal producer Bumi Resources lowered its 2020 output guidance to 85mn-90mn t from a previous target of 94.5mn t, while fellow Indonesian producer Bayan Resources last month revised its 2020 coal output guidance to 26mn t, down from a previous target of 31mn-33mn t released in March.
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