Fitch: Indonesian coal sector outlook stable for 2009

(Jakarta/Singapore-09 January 2009): Fitch Ratings has today said in a just published special report, "Indonesia Coal Sector - 2009 Outlook" that the credit outlook for the Indonesian coal sector will remain stable during 2009, as demand for Indonesian coal should remain in place driven by its continued usage for power generation.

"Although no substantial increase in demand for thermal coal is anticipated given the global recession, the coal market is expected to remain fairly tight this year as the infrastructure bottleneck in Australian and South African ports persist," says Jessie Wahab, Associate Director in Fitch's Corporate team in Jakarta.

The global economic slowdown coupled with the massive correction of crude oil prices, from a record high of USD147/barrel to less than USD50/barrel, has resulted in the benchmark Newcastle Freight on Board coal price falling to less than USD80/ton from a peak of USD192.5/ton in July 2008. "While prices may fall further, it is expected to remain above its historical average in the medium-term," adds Ms. Wahab.

With the lower coal price, margin is expected to come down from the exceptional high level recorded in 2008, despite fuel expenses being the major variable component in production costs. Consequently, some companies in the sectors are expected to try to scale back their production ramp-up schedules and concentrate more on cost reduction projects to try and sustain margin. Indonesian coal production which had posted a strong growth rate in the past, recording a compound annual growth rate of 12.2% during 2003 to 2007, is expected to grow at a slower rate in 2009.

Given the lower valuation of coalmines as compared to H108, there will likely be a re-emergence of foreign interest to acquire coal blocks to ensure supply in the long-run. Nevertheless, Fitch notes that the Indonesian parliament passed a new mining law on 16 December 2008. There are some concerns on the new law and investors will continue to ponder the uncertainties of this issue. (end of release)