Jakarta Stock Exchange-listed coal producers are facing heightened volatility after the government outlined plans to channel coal exports, alongside other commodities, through a new state-owned entity, deepening an already difficult year for the sector.
The drop in shares can affect market valuations of large Indonesian coal producers, and dent ability to access credit. It can hence make bank loans and bond refinancing significantly more expensive.
Coal producers Bumi Resources and Bayan Resources extended their losses on 21 May, closing 5.2pc and 6.47pc lower, respectively. This pushed their year-to-date declines to 55.19pc and 33pc, while both stocks have fallen sharply over the past five days — down by 23.4pc and 6.5pc. The weakness was broad-based across the sector. The IDX Sector Energy Index fell by 6.9pc, dragged lower by heavy selling in major coal names. Singapore-listed Geo Energy also came under pressure, closing 5.1pc lower and extending its five-day losses to around 20pc.
Selling pressure intensified as little clarity emerged on how existing contracts will be handled. Utilities in southeast Asia and India are seeking assurances from Indonesian suppliers, and reaction from China — the largest buyer of Indonesian coal — has been cautious, with some participants questioning whether the policy is workable in practice.
An Indonesian producer said it had received multiple customer queries on contract fulfilment, but that guidance remains limited, although the market impact on state-controlled coal producer Bukit Asam appeared to be limited. Shares of Bukit Asam closed 3.9pc lower on 21 May, down by 4.2pc over the last five days, but still up by 17.3pc since the beginning of the year. Some other coal producers were also up on a year-to-date basis as an increase in coal price since the beginning of this year had buoyed investor confidence, while Bukit Asam also gets priority in domestic sales, partly cushioning it from policy changes with respect to export-oriented transactions.
The coal industry wants technical clarity over long-term supply agreements and multi-year offtake contracts that could potentially be at risk because of the policy change. Maybank Securities has advised clients to largely avoid the commodities sector pending clearer policy direction.
Policy uncertainty is also compounding an already weak macro backdrop, further eroding investor confidence. OCBC Research pointed to persistent foreign outflows from Indonesian equities, with the rupiah down by around 7pc year to date versus the dollar. The Indonesian currency has been among Asia's worst-performing in recent months.
The recent move by Bank Indonesia, the country's central bank, to tighten rates has offered only limited support, with analysts pointing to policy clarity, rather than monetary action, as key to stabilising sentiment. Indonesian president Prabowo Subianto probably expects that export sales through state-owned entity would help to ensure that sale proceeds are parked within Indonesia. He cited an estimated $908bn in lost revenue over the past 34 years due to under-invoicing, transfer pricing and weak oversight of commodity export proceeds, arguing that tighter governance is needed to capture the full value of strategic commodities.
The 20 May announcement is the latest in a series of policy changes that aim to give Jakarta tighter controls over the country's coal mining industry and bolster prices. The latest policy will be rolled out in phases from June through August. Exporters will gradually shift contracts, transactions and payment flows to the BUMN — the state owned entity that will be created to centralise commodity exports — before the entity moves to full end-to-end control of transactions from September, and after December only the state entity would be able to export coal.
