JLT Specialty's Mining team has published a risk bulletin on the mining sector in Indonesia providing insight into the short and long term outlooks for the country's coal industry.
Here are a few of the findings related to coal within the bulletin:
The outlook for Indonesia's coal miners is positive in the short term. According to BMI Research, a unit of Fitch Group, Indonesia will increase production by an average 3% annually from 2016 to 2020.
Indonesia’s domestic demand for coal was 25% of production in 2016 (up from 15% in 2013), and this level is anticipated to rise in the next five years. The reason for the increase is the government's plan to invest in power infrastructure over the next decade. In June 2016, Indonesia's Ministry of Energy and Mineral Resources issued the 2016-2025 electricity supply business plan which outlined plans to achieve 99.7% electrification by 2025. The plan expects coal to make up 60% of the fuel mix for the country's total capacity of 90.5GW by the end of 2019.
Although coal usage may have fallen in the US (by 15% in 2015) and in Europe on account of growing political commitments to cleaner forms of energy, in many emerging markets it is still the cheapest and most abundant form of power. The region of Southeast Asia alone has nearly 400 new coal fired power plants in the pipeline; the majority are in rapidly growing Southeast Asian economies such as Vietnam, Thailand, and Malaysia. Japan is also pushing ahead with more coal fired plants to replace nuclear power plants.
While other coal producing nations are still struggling with subdued coal prices and in many cases, greater regulatory oversight, Indonesia, with its relatively low costs for production, has an opportunity.
To read the full bulletin, please visit the JLT Specialty Limited website.