Indonesia asks miners to submit production plans for next 3 years

Indonesia has introduced fresh guideline for the country's coal and mineral miners, asking them to provide production plans for the upcoming three years, according to an official document seen by S&P Global Commodity Insights Sept. 21.

Previously, miners had been obliged to submit their operational plans and budget -- locally known as RKAB -- for the next year only, with a provision to propose excess output later in the year.

Industry sources said the move is aimed at gauging domestic requirements better and be prepared for long-term supply challenges, if any, while also keeping in mind higher anticipated local demand in the coming years.

The government will be able to plan properly on how much coal is required and how much can the shortage or surplus be, one Indonesia-based miner said.

"This is likely to establish a more efficient system of approving the production quota for miners," another producer said, adding that the government's attempt is to have a holistic grasp over the country's long-term capacity of mining.

Indonesia produces nearly 700 million mt of coal, 70% of which is exported, a dynamic that industry sources said could change, given that domestic requirements are expected to grow significantly and securing supplies becomes paramount.

In 2022, it produced 687 million mt, recording a 12% growth on the year and up from the target of 663 million mt target set for the year. Exports stood at around 465 million mt.

Some sources believe the directive will likely go through a stakeholder consultation and there could be some changes before next year. Miners have to submit their output plans for the 2024-2026 period, which may vary depending on the company's own requirements and demand/supply forecasts.

Indonesian coal miners have a pre-set domestic market obligation that mandates them to sell at least 25% of their production within the country. Failure to do so attracts heavy penalty and may also lead to cancellation of license. But most miners are more inclined towards exporting coal as they are bound to sell the fuel domestically at a capped price which limits their scope of higher profits.

The development came at a time when several coal miners in the country are waiting for an approval from the Indonesian government for their revised production quota for this year. Miners need further approval from the government for extracting more of their produces in a year than what they had estimated in their respective annual mining plans submitted earlier. The permission from the government for doing so usually comes by this time of the year, multiple sources told S&P Global.

The spot thermal coal prices remained elevated at the beginning of the year as geo-political turmoil between Russia and Ukraine continued to weigh on sentiment. However, for the last few months the market largely stayed bearish due to muted demand from major consumers like China and India. Recently, the spot market has been witnessing a sudden uptick in prices as demand from China surged before the country goes on a long holiday starting Sept. 29.

The price of Indonesian 4,200 kcal/kg GAR FOB coal was at $90/mt on Jan 3, while it stood at $54.95/mt on Sept. 21, according to Platts data from S&P Global Commodity Insights.