Coal price mover/ company killer ?

Coal price mover/ company killer ? [Posted 11 Aug 2014, 420 views, 8 likes, 0 comments]

I am always on the lookout for signs there may be a shift in the price of coal. The recent article in Jakarta Post (10 July) “Miners indebted Rp 5t to the government in royalties” outlines some US$ 430 million of outstanding royalties (from 2011 to present) is due by the end of the year. This should be seen in regards to the new Department of Trade regulation [Permendag No. 39/M-DAG/PER/7/2014 ] wherein it seems that after 1 September 2014 that each coal shipment shall have to show the previous shipments royalty has been paid. This means no more delayed full payment of royalties. I have yet to read the regulation in full, but it seems many coal companies – from tiny to mega players may be caught in this credit bubble.

The government was tough in implementing the raw ore export ban, so we may anticipate the government will be similarly tough in collecting such royalty before renewing the companies annual export permits (Clear & Clean). Companies that borrow to meet this commitment will have higher ongoing interest payments, squeezing profitability further. Other companies may simply fold. Given this large amount of money owed, we may expect mine closures in the last quarter of 2014 or the first quarter of 2015. This may reduce Indonesia’s coal output, perhaps in sufficient quantities to affect price sentiment, leading to some temporary increase in coal price. Indeed this would be in line with the Indonesian government’s policy of restricting supply to increase commodity value, as reflected in the government’s policy to manipulate the tin price.

Perhaps if Indonesia does not act to collect such royalty, then other countries competitive suppliers may accuse Indonesia of dumping coal (not paying royalties) and seek World Trade action.