RELEASE: Fitch:Stable to positive outlook for Indonesia coal producers
Monday, February 4 2008 - 02:59 AM WIB
(Jakarta/Singapore-04 February 2008): Fitch Ratings has today said, in its "Indonesian Coal Producers - Outlook for 2008" report, that it expects the outlook for the Indonesian coal producers to remain stable to positive in 2008 on the back of strong global coal demand, Indonesia's ability to increase its export volume, and the relatively high but stable price.
"The continued hike in oil and gas prices has prompted an increasing number of companies throughout the Asia-Pacific region to rely more on coal as a source of power supply. In addition to the regional demand, the Indonesian government plans to build additional coal-fired power plants with a total capacity of 10 gigawatts by 2010 to cope with the current power shortage, as there has not been any major capacity expansion post the financial crisis," says Jessie Wahab, associate director with Fitch's corporate ratings team in Jakarta. Boosted by the low interest environment, cement and steel manufacturers, which are traditionally high coal consumers, are also thriving on the booming property sector.
Meanwhile, supply is inadequate to keep up with the robust coal demand, as major coal exporters such as Australia and South Africa, have not been able to grow exports due to infrastructure bottlenecks. In addition, China, the largest coal producer in the world, has reduced coal exports to meet own domestic needs; it is notable that China was a net importer during certain periods in H107. Following the widening deficit, consumers have turned to Indonesia, the world's largest coal exporter, to reduce the supply gaps given its abundant coal reserves, low costs and geographical proximity to the large North Asian markets.
Coupled with the tight coal supply, the rising crude oil price pushed the benchmark Newcastle FOB coal price to a peak of USD93.70 per ton in January 2008 from USD51.75 per ton recorded at the end of 2006. "Fitch does not foresee coal price rising as sharply in 2008 as it did in 2007, but expects it to remain high as suppliers will continue to struggle to meet the high demand from the Asia-Pacific region," adds Ms Wahab.
Owing to high coal prices, the major Indonesian coal producers are continuing to capitalise on their strong operating cash flow to invest further in mining and related infrastructure in order to increase capacity. However, these efforts are being hampered by higher operating costs (particularly fuel), a shortage in mining equipment and inclement weather. Fitch also expects more foreign interest in acquiring stakes in existing operators or investing in new mines to secure their coal supplies in the long run. Nonetheless, high valuation and uncertainty in the domestic regulatory environment are likely to be the key deterrents of possible transactions.
The full outlook report, "Indonesian Coal Producers - Outlook for 2008", will be available shortly on the Fitch Ratings website at www.fitchratings.com.(end of release)