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Thursday, 11 June 09
COAL PRODUCERS TO SEE BOOST IN DEMAND FROM ASIA PACIFIC - JAKARTA POST


The Jakarta Post reported that, at the recent 15th Coaltrans conference in Bali, we noted concerns related to rising oil prices at a faster pace than coal, which could incur heavier production costs for coal producers. However, we expect these increases to be offset by buoyant coal demand from the region.

India for example, clocking 8 percent annual power demand growth, estimates demand for imported coal to reach 43 million tons in 2009 because of its short domestic supply.

Additionally, India's cement industry is also growing at 9-10 percent annually, while its steel consumption is seeing 8 percent growth each year.

This is also supported by the Indian Electricity Act 2003, setting out to provide electricity for all of India by 2012. Hence, power demand in India is estimated to grow to 315 GW (gigawatts) by 2017, from 120 GW at present.

India has fallen short of meeting its thermal coal demand since 2005. Back then, the deficit was 37 million tons. This grew to 90 million tons in 2008, and is predicted to grow to 160 million tons by 2012.

The Coal and Oil Group of India estimates thermal coal imports to triple to 100 million tons by 2012, making it the world's fastest growing coal importer.

Support should also come from the Philippines with its estimated annual coal consumption of between 8.7 million - 10.2 million tons by coal-fired power plants alone, versus its annual coal production of 3.6 million tons.

Total coal demand in 2008 for the Philippines was 12.2 million tons, including coal usage by industrial, cement and heavy equipment sectors with the power sector accounting for 72 percent of demand.

Wood Mackenzie believes China will add pressure to demand by becoming a net coal importer as of 2009, with a gradual decline in coal exports, flattening out at 30 million tons a year by 2015.

On the domestic front, state utility firm PLN predicts Indonesia's energy demand to rise from 272 TWh (terawatt hours) this year to 325 TWh in 2018, when it predicts coal-steam power plants will account for 60 percent of the supply.

Coal demand for power generators is estimated to reach 107 million tons by 2018, up from 32 million tons in 2009.

By 2015, low-grade coal usage is expected to rise to 53 percent, from 8 percent in 2008, while medium and high-grade coal usage should decrease.

The government has adopted a mechanism to regulate both volumes and pricing for domestic market obligation (DMO) to ensure domestic demand is met.

Coal volume will be regulated through the Ministerial Decree on Minimum Percentage of Domestic Coal Sales, which will be distributed proportionally among coal buyers.

The government also plans to set an Indonesian Coal Price Reference (ICPR/HPB) to be applied for both producers and consumers. ICPR will rely on a reference index averaging on 4 indexes (ICI, BJ, GC, and Platts).

The new Minerals and Coal Mining Law has provided clear structuring through new mining licenses (IUP or IUPK) which apply for domestic and foreign investors.

However, regulations on divestiture of shares owned by foreign parties after five years of production may discourage foreign investment in the sector, but will provide support for domestic coal producers.

As a major thermal coal exporter, Indonesia will fully benefit from the short coal supply in neighboring countries.

Indonesia's strategic geographic location will make it a prime choice among coal suppliers based on lower delivery costs and timing compared to other countries such as Australia.

Declining coal exports from the Atlantic (the US) should also create potential for coal markets in the Pacific, particularly Indonesia.

The writer (Katherine Hermawan) , is a research analyst at Bahana Securities
Source: http://www.thejakartapost.com/news/2009/06/11/coal-producers-see-boost-demand-asia-pacific.html



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