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Indonesian coal miners adapting to tighter import curbs in China

With China slashing coal imports in a bid to lower air pollution and to boost the domestic industry, miners in Indonesia are carving out different strategies to adapt to the changing dynamics of the marketplace.

China's coal imports fell by 17% in April due to warm weather and import restrictions on ports in some eastern provinces, with total imports this year expected to slide 8% on potential import curbs, according to a Chinese industry official. Meanwhile, domestic output rose 4% in the month as curbs on foreign coal lifted domestic prices.

Adam Tan, investment director of Indonesia-based Geo Energy Resources Ltd., said in an interview that the company is seeking an off-taker for its PT Tanah Bumbu Resources, or TBR, coal mine, which is expected to kick off production in the second quarter.

Though China accounts for over 90% of the company's total revenues, it is exploring opportunities to sell coal to Japan and South Korea to diversify client base.

"We actually have many end users [in our client base], including big power plants in China," Tan said. "Currently we don't have any domestic obligation, but it is an option."

Tan added that the company, which is looking to produce between 11 million tonnes and 12 million tonnes of coal this year, is also considering partnership opportunities along with the diversification play.

Meanwhile, PT Bumi Resources Minerals Tbk said it plans to produce more material of higher calorific value to take advantage of high prices after posting first-quarter production of 20.5 million tonnes. The company did not respond to a request for comment as of press time.

Chen Guangzhi, a Singapore-based investment analyst with Phillip Securities Research, said both miners and traders have to adapt to policy changes in China.

"If China capped the imports [of low grade coal] from Indonesia, trading houses would have no choice but to defer the procurement from domestic coal mines," Chen told S&P Global Market Intelligence.

Chen expects Beijing to continue to tighten use of lignite, a type of coal with lower heating value that is largely supplied by Indonesia, this year, and to promote gas consumption.

Cui Yu'e, a coal analyst with Chinese commodity consultancy Zhuochuang, expects China's import curbs on coal imports to be a long-term policy for the industry, as it serves to support prices and benefit domestic miners.

"The National Development and Reform Commission has been sending the message via different meetings this year, which is that domestic production of coal should be sufficient for domestic use," Cui said.

Beijing's efforts to tackle pollution has prevented utilities from importing cheaper coal in August 2017. More recently, some ports again increased their inspection initiatives, according to Cui.

Cui noted that several large traders have said that some Chinese ports have been extending clearance time for coal imports. "So far I think impacts on the market are limited, as there has not been any restriction on the import amount," Cui said.

Cui added that the regulators have not issued a detailed guideline for import curbs, as to what qualifies as low-quality coal and whether or not there would be an import quota for certain types of coal, which increases uncertainties for market players.

"The regulator has been mulling over a more detailed proposal [for import curbs], which may include classification based on heating values," Cui said.

Both Cui and Chen expected China's regulations over coal imports to tighten, and growth in coal consumption to slow down.

S&P Global Platts and S&P Global Market Intelligence are both owned by S&P Global Inc.