Coal news and updates

Indonesia’s plan to raise thermal coal-mining fees may curb shipments from the world’s biggest exporter and drive up fuel prices from a four-year low in China, its largest customer.

 

Sales to China may drop as much as 20 percent if the government imposes higher royalties on some mining companies in 2014, according to UOB Kay Hian. That may drive up domestic prices in China by as much as 3 percent, the China Coal Transport and Development Association said on Oct. 30. Indonesia’s coal association and Macquarie Group also predict output cuts if fees are increased.

 

Indonesia’s attempts to ease a record current account deficit by boosting revenue from its mining industry is roiling commodity markets from coal to nickel to tin, which climbed to the highest level in more than six months after the government restricted exports. Higher coal royalties threaten to narrow margins for Bukit Asam and other Indonesian mining companies. Fewer exports would boost returns for Shenhua Group, China’s biggest coal producer, which reported a 15 percent drop in third-quarter profit amid a supply glut.

 

“The proposal will raise coal-mining costs, which will discourage miners from lowering prices in order to export to China, and this in turn will help mitigate oversupply,” said Helen Lau, a Hong Kong-based analyst at UOB Kay Hian who predicts benchmark Chinese prices will rise 5 percent next year.

 

Prices are probably bottoming, according to UOB Kay Hian’s Lau and Winston Han, a Beijing-based analyst at CCTD. Cargoes were in a range of 535 yuan to 545 yuan on Sunday. Coal may average 580 yuan next year, about 7.4 percent more than now, according to the most bullish forecast in a Bloomberg survey of five analysts. The median estimate was 570 yuan.

 

Indonesia wants to increase royalties to 13.5 percent, from 3 percent to 7 percent now, for miners that hold business licenses known as IUPs, Finance Minister Chatib Basri said in a meeting with parliament June 24. About 30 percent of the country’s producers hold IUPs, according to the coal association. The remaining 70 percent, including Bumi Resources and Adaro Indonesia, already pay royalties of 13.5 percent.

 

The government may yet abandon or dilute the plan, if history is any guide. It dropped a proposal to ban overseas sales of lower-quality coal earlier this year and relaxed new tin-quality standards three days before they were scheduled to take effect on July 1.

 

Source: Bloomberg