Coal-miners initiate benchmark

Leony Aurora, The Jakarta Post, Jakarta

Coal mining companies in Indonesia are developing an output- specific price index that will be used as a reference in domestic and international trade.

Indonesian Coal Mining Association chairman Jeffrey Mulyono said the Indonesian Coal Index (ICI) would reflect the average of transactions concluded with local and global consumers over a certain period of time, possibly a week.

"With such a reference, hopefully our coal prices will be more stable," Jeffrey said on the sidelines of a coal seminar on Wednesday.

"We hope to realize the index by the end of the year," he added.

At present, Indonesia's coal price is included in the Barlow Jonker Index (BJI), which monitors coal from Australia and Asian countries.

Jeffrey said Indonesia's coal had lower caloric value compared to other countries but lower sulfur and ash content, desirable qualities for power plants.

The BJI concentrated mainly on caloric value, an area where Indonesia had a disadvantage, he said.

"The ICI will portray the advantages of the (low) sulfur and ash, although this also means low caloric value."

Indonesia is the world's second-largest exporter of thermal coal, which is used in power plants, and the fifth-largest exporter of ordinary coal, which is a lower grade used by steel plants.

High coal prices, prompted by rising global demand as oil prices break new records, have encouraged Indonesia to increase production of the resource.

Some 70 percent of the 131 million tons of coal produced last year was exported to Japan, Taiwan, South Korea, India and China.

The ICI, said Jeffrey, would be similar to the Indonesian Crude Price, which factors in different kinds of oil produced locally and serves as a reference price.

"The government can also use the index to estimate cost, for example, in cement or textile production," Jeffrey said.

The association has estimated that total coal exports of various types will continue to increase to 193 million tons by the year 2010; from about 91 million tons in 2004 and about 104 million tons this year.

The demand for Indonesian coal from China alone is projected to increase by 18 percent over the next five years, while demand from India is expected to surge 16 percent for the same period.

The coal price, which has fluctuated around US$28 a ton during the period 1999 to 2003, surged to average of $44 per ton in 2004 after major coal producer China stopped exporting to meet its growing domestic needs.