Indonesia to reign as world's top thermal coal exporter.

Indonesia is set to become the world's biggest thermal coal exporter this year overtaking Australia, a position which the country will likely to retain in a next few years due to adequate room for expansion and slow growth in domestic consumption, combined with port bottlenecking in Australia.

"Indonesian coal exports will reach 115 million tons this year, surpassing Australia, which is expected to export 110 million tons," Jeffrey Muljono, chairman of Indonesian Coal Mining Association (ICMA) said in an interview recently.

Jeffrey said Indonesia is producing 155 million tons of coal this year, 70 percent of which will go to the export market.

Jeffrey said that Indonesia's top position would continue for at least several years, as Indonesian coal producers are still in an expansion mode albeit at a slower rate. "The increase in production would come from existing and new small mines that are currently being developed and would ready to enter the export market for 2006 and beyond," he said. Jeffrey estimated that Indonesia could add some 15 million tons each year in the next few years, as Indonesian coal producers have no problem in developing loading points for their production. "Indonesian coal producers advantage, as opposed to their Australian competitor which often face port bottlenecking, is that the mines are located near big rivers or not far rom a shipping point, giving them flexibility to increase and export and production," he said.

Jeffrey said that bigger part of production addition would go to export market as Indonesia domestic coal consumption would not be increasing significantly until several new coal-fired power plants would commence operations in 2006-2008 period. "The only major consumers addition in 2006-2008 would be Cilacap and Tanjung Jati B power plants," said Jeffrey.

A Petromindo source with one of Indonesia's coal miners said that in 2005 the world's seaborne thermal coal trade is in balance, with China and India the motors for future consumption growth due to their continuing tremendous economic growth. "India and the southern part of China will import more and more of Indonesian coal due to geographical proximity and therefore those countries will absorb more of Indonesian coal production growth," the source said.

Earlier reports said that demand for Indonesian coal from China, the world's second largest energy consumer, may increase 18 percent in the next five years while sales to India may gain 16 percent.

The source said that in 2004-world seaborne thermal coal trade volume reached 470 million tons and would increase to 490 million tons in 2005, and over 500 million tonnes next year with Indonesia seen to produce the majority of volume addition. "Indonesia still has capacity to expand while Australia is faced with port bottlenecking that will only ease after the next two years," said the source. The source also added that other major coal producers such as South Africa and Columbia would not be able to increase production as much as Indonesia and production increases from Columbia will mainly go to the USA market.

The source concluded that within a 2 to 3 years' range, coal prices would continue at historically higher levels as the demand and supply continues to be in balance. "Currently the world's spot and term contract price are converging at around the US$50-54 per tonne level, which is an indication of a balanced supply-demand situation," said the source. The source said the high coal price level would remain. The source predicted that this year price would stay at $50 per tonne range, and next year would slightly fall to the $45 per tonne level.

He added that the good years for Indonesian coal industry would last for several years to come as the historic low price levels of $25-30 per tonne level the industry experienced in 2002-2003 were unlikely to return.

The source agreed with Jeffrey that Indonesia would retain dominancy in world thermal coal export market. "Even if coal prices go down, Indonesia will be least affected as Indonesian coal producers have significantly lower production costs compared to Australia's current production cost of around US40 per tonne," said the source without citing number for Indonesia's production cost.

Jeffrey, however, warned that the booming coal industry created new headache for Indonesian producers, as many new players are trying to cash in the boom are trying to take part of existing miners' concessions by using the hands of regional governments. "It is a very common problem among Indonesian concession holders that regional government backed by businessmen force the companies to give up parts of their concessions. They argue that the concession holders had let their areas dormant and therefore not contributing to regional governments' revenue. They don't want to know that coal mining is a long term business that requires careful production planning," he said. "Worse, the regional governments had often issued mining permit to that are located within existing concession holder's area. They are only thinking of short-term gain," he said. (alex)