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Indonesia H2 coal production outlook bearish, seaborne fundamentals weak

Highlights

Production cuts not catching up to demand falls

Production activities likely to remain conservative

Reduce operational, mining costs amid supply cuts

Singapore — Indonesian thermal coal producers bemoaned a downbeat sentiment on the near term production outlook across the Kalimantan archipelago, with many miners cutting their production forecasts to buoy export prices and maintain margins for the remainder of the year, sources said Aug. 6.

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The Indonesian Coal Mining Association issued a notice July 2 to urge miners to reduce their output amid lackluster seaborne demand and bearish export prices.

Indonesian coal miner Adaro Energy, the country's second-largest producer, expects 2020 coal production to be 10% lower on the year as it strives to battle weak demand, S&P Global Platts reported earlier.

Similarly, Indonesian thermal coal miner Harum Energy said its sales volume over H1 2020 was down 21.7% on the year to 1.6 million mt, while production activities are expected to remain conservative for the remainder of the year, according to the company's half yearly report on July 30.

Other coal producers including Bumi Resources were also bearish on the near term production outlook as bearish seaborne sentiment continue to cast shadow on Kalimantan export prices.

Platts assessed the FOB Kalimantan 4,200 kcal/kg GAR -- or 3,800 kcal/kg NAR -- coal price at $24.30/mt on Aug. 5, down 27.4% since the beginning of the year.

Bearish factors are outweighing potential supportive factors in the market under the current climate, said an Indonesia-based analyst who deals with low-cv coal.

"Chinese import quotas are likely to diminish towards the end of the year and seaborne enquiries from China will be limited," he said.

Despite a seasonally strong Q4, forward curve prices for the Indonesian 4,200 kcal/kg GAR coal prices are on the lower end of the forecast with not much upside potential, he said.

Production cuts across Indonesia is hardly able to catch up with the fall in seaborne demand, he added.

Amid a lack of clarity on the Chinese import quota situation coupled with high power plant stockpiles in India at around 40 million mt and an absence of widely available vaccine to combat the coronavirus pandemic, sluggish factors are weighing on the overall sentiment, he said.

A mid-high cv coal analyst based in Indonesia also said that his company has cut production by around 15-20%.

"We expect that production cuts limiting supply may help to support Kalimantan export prices in Q4 prior to the winter restocking period from the major coal consuming regions," he said.

At the same time, production cuts will reduce operational and mining costs, he added.

"Sub-bituminous coal export prices from Indonesia have fallen below production costs and this could see an acceleration of production and export supply removed from the seaborne market. Indonesian coal producers are especially impacted as their main export market, China, is enforcing limits on import port quotas," said Matthew Boyle, lead coal analyst from Platts Analytics.