Coal Production Predicted to Remain High

Coal price

The pace of national coal production is expected to remain high this year even though the inhibiting factors have the potential to strengthen.

Last year’s production realization was the highest at 528 million tons, an increase of up to 14.53% compared to that in 2017 at 461 million tons. Last year’s results were also above the initial plan based on the work plan and budget (RKAB) of all coal companies, amounting to 485 million tons.

Director General of Mineral and Coal of MEMR Bambang Gatot Ariyono said that such high production has previously been predicted.

It is Because the government allows companies that have fulfilled supply obligations for domestic interests (domestic market obligation / DMO) to increase production.

In the Decree of the Minister of Energy and Mineral Resources No. 1395 K / 30 / MEM / 2018, coal companies that have fulfilled a minimum percentage of DMO obligations of 25% have the right to increase the amount of production to a maximum of 10% of the agreed production capacity.

“the last year’s production was in accordance with the prognosis by calculating an additional production of around 21 million tons from the initial plan of 485 million tons. There were additions from permits in the area,” he said last weekend.

Related to DMO, the last year’s realization reached 115 million tons, an increase of up to 18.56% from that in 2017, which was as many as 97 million tons.

Even so, the realization of the 2018 DMO is still below the target of 121 million tons.

Bambang stated that not all companies have the ability to allocate 25% of their production domestically. However, that 115 million tons have fulfilled national needs over the past year.

“The target is 121 million tons, but with 115 million tons, it meets our needs. So, the DMO is not really a problem,” he said.

For this year, Bambang estimates that production levels will not be much different from that in 2018.

According to him, the production plan of the company’s RKAB is likely still in the range of 480 million tons.

By considering the submission of additional production from companies that have implemented their DMO obligations, the realization can be higher than that figure.

As for the 2015-2019 National Medium-Term Development Plan (RPJMN), actual production is targeted to continue to decline to 400 million tons this year. However, the plan becomes irrelevant because companies entering the production operation phase continues to grow, and their operations cannot be stopped.

Even though last year’s DMO realization has fulfilled domestic coal needs, Bambang stated that many companies could not supply up to 25% of their total production.

For this reason, MEMR will prepare sanctions in the form of a reduction in production from the plan proposed this year. “We will surely impose sanctions on them, which will be determined later”.

Although the amount will not be too significant, the sanctions will be a deterrent factor in the pace of production which is increasingly difficult to control.

The significant reduction in the number of mining business permits (IUP) after the mine structuring process that was completed last year has the potential to hold back production throughout 2019.

Meanwhile, Executive Director of the Indonesian Coal Mining Association (APBI) Hendra Sinadia said that the amount of production this year would be greatly influenced by coal prices. China is still a determinant country.

“Now the price of low-calorie coal is quite depressed due to restrictions on Chinese imports. For companies that produce low-calorie coal, especially small and medium-sized companies, they might consider not boosting production first,” He told Business.

In January 2019, the Ministry of Energy and Mineral Resources set a reference coal price (HBA) at the level of US $ 92.41 per ton or slightly down 0.10% from the December 2018 HBA worth US $ 92.51% per ton. The January 2019 HBA was the lowest since May 2018 worth US $ 89.53 per ton.

Its value is far below the average HBA last year which reached US $ 98.96 per ton. However, it is still higher than the average HBA in 2017 worth US $ 85.92 per ton

Nickels & Bauxite

Meanwhile, the export of low-grade nickel ore and bauxite by the smelter building companies continued to rise even though it was still far from the quota given until the end of 2018.

Bambang Ariyono said that from the export quota of 48 million tons for nickel, the realization has only reached 22 million tons or 48.83%.

Meanwhile, for bauxite, from the export quota of 26 million tons, the realization is only 9.80 million tons or 37.69%.

“The quota given is adjusted to the capacity of the smelter they build. It’s up to them to take advantage of everything or not,” he said.

Meanwhile, Director of ESDM Ministry of Mineral Business Development Yunus Saefulhak explained that there were several factors affecting the export realization. Two of them are the preparation of the company in carrying out production and shipping in response to market demands abroad.

Although the realization is still relatively low, the sale of nickel and bauxite abroad since the opening of the export tap in 2017 continues to increase in each semester.

In the first half of 2017, the export realization of new nickel ore was 403,201 tons. The amount increased to 4.63 million tons at the end of 2017 and continued to advance to 8.14 million tons in the first half of 2018.

Not much different conditions also occur in bauxite commodities. In the first semester of 2017, the realization of exports only reached 57,135 tons. This number increased to 1.76 million tons in the second half of 2017.

As for the end of the first semester of 2018, the volume increased again to 3.13 million tons.

Previously, Chairman of the Indonesian Mining Institute (IMI) Irwandi Arif said that the government needed to be careful in keeping the track of how much raw minerals were exported because it will greatly affect the price in the future.

“Now the exported products only experience a slight increase in prices. Later, if there is too much, the supply will also be excess, that should be our concern,” He told Business.

In Article 9 and 10 of the Minister of Energy and Mineral Resources No. 5/2017, nickel with a content of less than 1.7% and washed bauxite with Al203 content more than or equal to 42% are classified as metal minerals that can still be exported with special criteria.

Holders of nickel Production Operation IUPs are required to use the low-grade nickel at least 30% of the total input capacity of the smelter owned. Once fulfilled, IUP holders can export the low-grade nickel ore in a certain amount for five years.

Holders of bauxite Production IUPs that have carried out leaching and have or are currently building smelters can export their commodities to a maximum of 5 years since this regulation was issued.

Both nickel and bauxite will be subject to export duty at 10% when exported.

Source: Bisnis Indonesia