Harum maintains bearish thermal coal price outlook

OREANDA-NEWS. August 06, 2015. Indonesian coal producer Harum Energy is maintaining its bearish outlook on coal prices, with the firm projecting that the continuing supply glut will keep domestic prices under pressure even as the country's mining firms reduce their output.

Harum's coal sales during January-June fell by 38.5pc compared with same period a year ago to 2.7mn t, while the average price it received for its coal during the same period dropped by 14.9pc to \\$54.10/t. The firm's earnings during the first half of the year were 62.2pc lower than a year earlier at \\$11.2mn

Harum produced 2.3mn t of thermal coal during January-June. Production during April-June was little changed from the previous quarter at 1.1mn t, although sales during the period increased by 5pc from the January-March quarter to 1.4mn t. All of the firm's production during the first half of the year came from its Mahakam Sumber Jaya operations, as work at three of its mines linked to its Santan Batubara mining unit remain suspended.

The company's sales during January-June were exclusively to buyers in Asia-Pacific. South Korea accounted for 44pc of total sales during the period, while Taiwan accounted for 16pc of sales, Malaysia 15pc and China 11pc. The company also sold coal to Japan and India, while other unnamed countries accounted for 9pc of Harum's sales during the first half of the year.

Harum is aiming to continue focusing on cost-cutting measures for the remainder of this year. These include plans to reduce its barging fleet by 25pc during the third quarter in an attempt to reduce its fixed operating expenses.

"The market remains oversupplied, with few cuts in output by producers outside of the US," the company said. "Thermal coal prices remain at eight-year lows and the prospect of a recovery in prices looks unlikely in the near term."

Currency devaluations in producing countries and productivity improvements by many major producers have delayed the supply rationalisation required to rebalance the market, the company said. The continuing devaluation of the Australian dollar means most Australian producers remain more profitable than their Indonesian counterparts. The weak Russian rouble has also led to falling prices for Russian coal, which has increased its share in several major Asia-Pacific markets, notably South Korea, Japan and Taiwan.

While there are now signs that Indonesian mining firms are starting to cut back on their production, the country's coal producers have been hit hard by slowing demand from China because of tighter import policies and a slower economic growth during the first half of this year, Harum said.

Indonesia's thermal coal production fell by 19.5pc from a year earlier to 201mn t in January-June, according to data from the energy and minerals authority, although this has had little impact on prices. Prices of GAR 5,000 kcal/kg coal sold a fob Indonesia basis are currently at \\$40.69/t, which is more than 15pc lower than at the start of the year.