Indonesian Coal Miner Shares Tumble on Possible New Pricing Rules

A worker of state-coal miner Bukit Asam cleans a conveyor belt at the Tarahan coal port in Lampung province in this Aug. 20, 2011 file photo. (Reuters Photo/Dwi Oblo)

By : Fergus Jensen | on 8:11 PM September 13, 2017
Category : Business, Commodities

Jakarta. Share prices of some of Indonesia's biggest coal miners plunged on Wednesday (13/09) after the country's mining minister said he would be open to revising domestic coal pricing rules.

Bukit Asam was worst hit, tumbling 17 percent to close at Rp 10,075 ($0.7632), while Bumi Resources dropped 9 percent to Rp 218, and Adaro Energy fell 8 percent to Rp 1,715.

Domestic media reported that Energy and Mineral Resources Minister Ignasius Jonan was considering drafting new rules on marketing coal for domestic supply, as part of government efforts to reduce electricity prices. The comments were later confirmed by Reuters.

Recent high coal prices have put pressure on state electricity utility Perusahaan Listrik Negara (PLN), which buys the bulk of the roughly 90 million tonnes of coal consumed domestically each year.

Indonesia requires miners to set aside a portion of their output, based on assumptions of domestic demand.

"To devise the right coal price formula, Mr Jonan will definitely listen to input from related stakeholders, primarily coal companies," said Hadi Djuraid, who works in Jonan's office.

However, Djuraid said there was no timeframe yet for a new pricing formula.

PLN has been pushing for the government to adopt a cost plus margin mechanism for coal purchases, which would allow it to maintain pricing stability, but which analysts say would hurt coal producers' profits. Djuraid, however, said the government would not just take PLN's proposals into account.

PLN strategic procurement director Supangkat Iwan Santoso was earlier quoted by domestic news portal as saying the company hoped to set coal prices at cost plus a 15 percent to 25 percent margin.

The proposed pricing mechanism would likely dent coal companies' profits, said Vicella Tjhin, an independent analyst.

"The main impact would be on companies that sell to PLN," Vicella said, referring to Adaro and Bukit Asam.

Australia's coal cargo prices for export from its Newcastle terminal hit a 2017 high of $103.5 per tonne at their last close, driven by strong Asian demand.

The Newcastle free-on-board (FOB) contract is seen as a benchmark for Asian thermal coal prices.


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