Interview: Thermal coal prices to remain high until 2005: ICMA

Thermal coal prices are expected to continue its bullish trend for another year as demand is predicted to remain strong and supply short, an Indonesian coal mining top executive said.

?The main driving force behind the continued strong trend would be a combination Chinese export cut, which is expected to continue until next year, and strong Australian currency against US dollar, which gave little incentive for Australian producers to increase production,? Jeffrey Muljono, chairman of Indonesian Coal Mining Association (ICMA) told Petromindo.Com in an interview.

Jeffrey, who is also president director of East Kalimantan coal mining firm PT. Berau Coal, said that Barlow Jonker index would hover around US$50 per tonne until 2005. Barlow Jonker index, which is used as benchmark for thermal coal prices, had risen 100 percent from $25 per tonne in May 2003 to $53 this week

?Chinese domestic thermal coal consumption will continue to be strong as her economic growth would not likely to slow down until after 2006. Therefore it is safe to predict her export cut policy to continue,? said Jeffrey. ?Earlier this year, we saw prices would soften by the end of this year, but now we see prices continue to remain strong until next year."

Freight costs, which had also risen sharply due to China?s strong bulk vessels demand, would also continue to be strong as China?s appetite for base metals to support its economic growth would still be high. ?Very few new bulk vessels will come on line this year and next year, as shipyards are busy building oil tankers,? said Jeffrey.

Indonesia is the world?s third top thermal coal exporter, exporting around 80 million tons of coal last year, mainly to Asia-Pacific market.

Jeffrey said Indonesian coal producers are winners in this situation. ?Indonesian coal producers are enjoying good time due cost advantages and relatively stable Rupiah exchange rate against US Dollar.?

He, however, did not see the strong prices trend as incentive to Indonesian producers to invest to boost production. ?What Indonesian producers now do is to up production through increased efficiency, which, can roughly increase output by 10 percent. Most of Indonesian existing producers are not willing to invest in new equipments to increase production as they are not confident that the good coal prices will last beyond 2005 and because increases in base metal prices had cause coal mining equipment prices to soar,? said Jeffrey.

But Indonesian coalmining house Bumi Resources is planning to increase coal output of its subsidiaries PT. Kaltim Prima Coal (KPC) and PT. Arutmin Indonesia from 26 million tons last year to 40 million tons by commencing production of new mines.

Jeffrey said given current global coal shortage, KPC and Arutmin?s output increase would be absorbed by the market without significant negative impact on prices.

He also said Indonesia is on track to increase production from 119 million tons in 2003 to 135 million tons this year. (alex)