Wed, 02 Jun 2010

From: Reuters

By Fayen Wong
NUSA DUA, Indonesia, June 1 (Reuters) - Indonesia's new forestry law, a changing climate and rising mining costs are the challenges coal producers face in their efforts to boost production, a conference heard on Tuesday.

Coal producers from Indonesia, the world's top thermal coal exporter, said the unpredictability of China's future import demand was also a risk faced by miners, as many are in the midst of ramping up output in anticipation of China emerging as a major net coal importer.

"The overlapping forestry and energy laws have caused a lot of uncertainty among producers because it means that some mining permits would not be extended, or existing ones could be revoked," Eko Natalina, general manager of sales and marketing at PT Berau Coal, said at the Coaltrans conference in Bali.

Thailand's Banpu PCL (BANP.BK) has already closed its Jorong mine in Indonesia since February due to an investigation into land-use permits for a protected forest area.

Indonesia's Forestry Minister Zulkifli Hasan also said in February that he had revoked the land-use permits for 23 mining and other operations in forested areas and may crack down further.

Climate change, distorting the weather patterns in Indonesia's coal-rich Kalimantan province, has also become a big headache for producers.

"We used to have dry weather during April and and September ... but for the past two years, it was wet for almost the whole year," said Hendra Santoso, director of junior miner E-Coal.

Edwin Tsang, Chief Marketing Officer at PT Adaro (ADRO.JK), cited the unpredictability of Chinese demand and rising costs as growing challenges producers face.

"Chinese demand may be looking quite promising right now, but their import floodgates can open and close without much notice and that can distort market prices and affect producers' expansion plans," he said.

According to coal services company Marston and Marston, the global coal sector is likely to experience cost pressure from higher stripping and transport costs as producers are required to dig deeper and go further inland to access economical reserves. (Additional reporting by Fitri Wulandari)