Geo Energy

Geo Energy - Note that Coal prices have been lacklustre in recent weeks, on back of weakening demand from China. Note that prices for thermal coal recently touched a three-year low of below $90/ton, a far cry from their post-2008 rebound on the back of demand from China and India. At this price, some producers are digging coal at a loss. In addition to soft global prices, Indonesian miners face two regulatory threats. The first is China’s proposed import ban on low-quality coal, which Chinese utilities are resisting but which has the support of domestic producers. Around one-fifth of annual imports, or 50m tons, would be banned, the FT reports. Naturally the proposed ban is welcomed by struggling Chinese miners who are located inland, far from the coastal cities where electricity demand is highest and seaborne imports are often cheaper to source. By burning less low-grade coal, China can reduce emissions and start to tackle its foul air (Beijing’s current pollution reading: Unhealthy). Domestic coal would also be subject to a lower quality cut-off. The second regulatory risk comes from Indonesia’s own government, which is hunting for more tax revenues and has been hurt by softer commodity prices. It wants to double the royalty on coal mined under a certain type of local permit, which would most affect smaller producers. Indonesia is the world’s largest exporter of thermal coal and is ramping up production despite sinking prices, with a forecast of 410 million tons this year, up from 375 million in 2012. This is another reminder of how commodity exporting nations are prone to externally-driven booms and busts, and why Indonesia needs to invest more into industry and services if it’s to take its place among Asia’s stronger economies.