In Commodity News 30/04/2015
Indonesian coal miners are diversifying into other businesses to offset a collapse in demand from China, which has slashed their cash flows to the lowest levels in months.
The free cash flow of the 15 biggest coal miners and contractors on Jakarta’s stock exchange averaged $10.7 million in the three months ended December, Thomson Reuters data shows. That’s the lowest since January-to-March 2014. Six of the firms, including PT Indo Tambangraya Megah Tbk and PT Golden Energy Mines Tbk, experienced negative free cash flow. That means the cash they generated could not cover operating costs. Company executives and industry groups are not expecting a pickup anytime soon in demand especially from China, the world’s top consumer of the commodity.
PT Adaro Energy Tbk, Indonesia’s biggest coal miner by market value, is turning its focus to its logistics business and power generation. Sinarmas Group, parent of Golden Energy Mines, is investing as much as $700 million to build two coal-fired power plants in Indonesia. PT Bukit Asam Tbk is conducting feasibility studies on setting up power stations in Vietnam and Myanmar.
Indonesia’s coal production may slide as much as 24 percent this year as miners slow output and concentrate on stabilising their businesses, said Pandu Sjahrir, chairman of the Indonesian Coal Mining Association. “The Chinese slowdown is worse than we thought,” Sjahrir said. “India and Japan have improved. The problem is that China overpowers everyone else.”
Adding to the industry’s woes, the government is planning to double coal royalties from next month. The move has led to sharp criticism from the industry, which expects a rise in illegal mining as a result. “This is a long-term industry. Do not let an entire industry die because they want to increase revenues from royalties,” Joko Pramono, corporate secretary at Bukit Asam, told Reuters on Monday. The weakening rupiah is providing some support. Bukit Asam exports half of the coal it produces.
