Coal not ‘dead’ as prices remain high, IPOs still appear lucrative



The coal-mining sector will likely still be one of Indonesia’s key-growth drivers in years to come, despite the country’s steady shift to renewable energy, as the “black gold” commodity prices are poised to remain elevated due to robust demand and persistent supply disruptions.

Furthermore, high coal prices have led to a positive prospect for companies who are set to launch initial public offerings (IPO) in the second half of this year, such as PT Black Diamond Resources, which began offering its shares on Aug. 12.

Indonesian Coal Mining Association (APBI) executive director Hendra Sinadia said that, through the world’s largest financiers of coal-energy projects, such as China, Japan and South Korea, have vowed to stop funding new coal-fired power plants overseas, existing coal plants still need to operate for years to come.

He expected demand for coal to remain strong for at least the next 10 years.

“Considering the high coal price, this is the right time for coal-mining companies to launch IPOs,” he told The Jakarta Post on Tuesday.

Indonesia’s benchmark coal price (HBA) hit US$323.9 per metric ton in June, the highest since the Energy and Mineral Resources Ministry first recorded its HBA in 2009, the ministry’s data show.

Meanwhile, prices for July and August slightly fluctuated to $319 per t and $321.6 per t, respectively.

Meanwhile, the ICE Newcastle coal-futures contract for September price closed at $445.5 per t on Monday.

Andreas Yordan, commodities analyst at Sucor Sekuritas, expected coal prices to remain high until year-end as an European Union ban on imports of Russian coal and other goods into the 27-nation bloc started on Aug. 10. 

Consequently, these countries -- including South Korea, Japan and the United Kingdom, who are also making moves to curb Russian coal imports --- need to find approximately 100 million t of coal elsewhere to replace Russian coal.

On the other hand, Russia’s transportation capacity is limited to redistribute coal via other trade routes, Andreas said, while supplier countries such as Australia, Indonesia and South Africa are struggling to increase their coal production.

“Concurrently, winter is coming, which means that an increase in energy demand is to be expected. Thus, the market is likely to have a deficit [in coal supplies] and coal prices will remain high,” he told the Post on Aug. 17.

Indonesia’s coal production as of June 27 reached 292.77 million t or 44.16 percent of the 663 million t targeted in 2022, the energy ministry data show.

“We believe that investor’s interest for coal mining companies is still quite high,” Paulus Jimmy, Sucor Sekuritas deputy head of research, said on Aug. 17.

Based on current economic and market trends, global coal consumption is expected to increase 0.7 percent year-on-year (yoy) this year to 8 billion t -- matching the annual record set in 2013 -- assuming the Chinese economy recovers as forecasted in the second half of the year, according to the International Energy Agency (IEA) report published in July.

Coal demand is also likely to increase further next year to a new all-time high.

Worldwide coal consumption rebounded by 5.8 percent to 7.94 billion t in 2021 as the global economy recovered quickly from the initial shock of the COVID-19 pandemic, the same report shows.

The steep increase contributed significantly to the largest-ever annual increase in global energy-related carbon-dioxide emissions in absolute terms, putting them at their highest level in history.

Coal demand in China and India increased by 4.6 percent and 12 percent yoy to 4.23 billion t and 1.05 billion t in 2021, respectively.

Other significant increases in coal consumption were recorded in the United States and the EU, increasing 15 percent and 14 percent, respectively, largely driven by gas-to-coal switching in power generation as gas prices increased in the second half. 

Nonetheless, both US and EU coal consumption in 2021 was below 2019 levels.

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