Mon, 21 Jun 2010

From: The Jakarta Globe

By Muhamad Al Azhari
As the nation’s coal miners enjoy burgeoning demand from energy-hungry economies such as China and India, the industry is upbeat that it can continue to boost output. Indonesia is the world’s biggest exporter of thermal coal, used to generate electricity.

A report by Moody’s Investor Service released this week said coal miners would enjoy strong prospects for growth over the coming year.

“We are optimistic about the sector, in light of steady growth in demand, low production costs, manageable capital expenditures and solid liquidity,”

Moody’s vice president Laura Acres wrote in the report, entitled Indonesian Coal Miners Well-Positioned for Growth. “Although these positives are offset by the possibility of event risk, asset concentration, and emerging market considerations.”

The Moody’s report said domestic coal producers come out of the recent financial crisis in good shape by keeping costs down while raising production and maintaining liquidity.

“Moreover, we believe that demand for Indonesian thermal coal from key consumers throughout Asia, especially India and China, will continue to be strong as the region continues to industrialize,” Acres wrote.

Bob Kamandanu, chairman of the Indonesian Coal Producers Association (APBI), said on Thursday that he was bullish that the local coal industry could continue to lift production over the next five years.

Much of the current optimism in the industry was because of the strong demand coming out of China and India and Indonesia’s proximity to those two markets.

“There’s plenty of demand,” Bob said, adding that mid-sized and large miners were currently gearing up to meet the demand and that the country could produce 400 million tons of coal a year by 2015.

APBI has forecast that coal production will be rise to 325 million to 350 million tons this year, up from 300 million in 2009.

Dileep Srivastava, head of investor relations at PT Bumi Resources, the nation’s leading coal producer, said the Moody’s report “reflected and reaffirmed Bumi’s long-held view that the thermal coal market is strong and getting stronger. Indonesia cannot keep pace with the burgeoning demand from China and India,” he said.

Bumi forecasts production will rise by at least 10 percent to 64 million tons this year.

Moody’s said it expected the government to continue to support the industry in its expansion and said some of the larger players were seeking to gain firmer control over their production supply chain and nearly double output in the next several years.

“But we think that capital expenditure requirements will remain manageable,” Acres wrote.

However, despite the positive outlook, it was unlikely that any of Indonesia’s coal miners would be able to achieve investment grade credit ratings, she wrote.

“This is because Indonesia’s coal mining companies lack geographic diversification. The range of commodities they produce is quite limited - in fact, it’s pretty much just thermal coal.

“Indonesian coal miners also faced further exposure to emerging market risk, primarily because of lingering uncertainty about regulatory issues.

Moreover, event risk may be a concern, depending on whether our rated issuers use their ample amounts of cash to benefit their bondholders [rather than their parent firms] or to make ill-advised purchases.”