Indonesian coal miners turn to power stations
TWO of Indonesia's biggest miners are building power stations to reignite coal demand and counter a drop in global prices that has squeezed industry-wide profit margins to their slimmest in a decade and dulled the appeal of exports to top consumer China.
Privately owned PT Adaro Energy, Indonesia's second biggest coal miner by revenue, and the government-run PT Bukit Asam are taking the lead in trying to burn some of the extra coal piling up in global markets as China's economic slowdown reduces its need for the fuel.
They are banking on the dominant, government-owned utility's need to meet the projected 9.4 percent annual growth in power demand over the next eight years, and the fact that a third of the 250 million population is not linked to any grid.
"The coal business is cyclical. By moving into power, we balance our portfolio by adding a business with steady, predictable and good returns," said Adrian Lembong, a director at PT Adaro Power, a unit of Adaro Energy.
"We will become the primary coal supplier for more power projects in Indonesia and the region, ensuring more customers can accommodate our coal."
Indonesia is the world's largest exporter of thermal coal, used primarily for power generation, and China is its biggest customer.
Exports, however, have diminished in value as benchmark prices fell by a third over the past 18 months and are now at their lowest in almost four years.
Bank Indonesia data shows the value of total coal exports fell eight per cent year-on-year in the first half of 2013 at the same time that volumes rose over 16 per cent.
That decline has made 2013 one of the worst years on record for most of the big coal miners which, on average, saw net profit margins fall 40 per cent year-on-year, their steepest decline since at least 2003, Thomson Reuters data shows.
Power stations may help increase miners' revenues, but they require huge infrastructure investment, analysts say. Reuters