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Rabu, 01 Juni 2011

Key takeaways from the 17th Annual Coaltrans Confrence in Bali - Mandiri

It is a great coal event attended by around 2,000 participants (30-40% are coal producers, 20-30% are coal traders or shippers, and 40-50% are bankers/analysts others). Some key highlights from day 1-2 include the Indonesian mining regulation, Indonesian coal outlook and Asia Pacific demand outlook.

Mining regulation (Zulkifli Hasan, Forestry Minister and Luke Devine, Legal consultant-Hadiputranto, Hadinoto & Partners):
Moratorium only applied to forestry and pit-land, which not include the existing coal mining operations. It might query upgrade status for exploration borrow-use permit to exploitation borrow-use. The moratorium mostly affects new players.
Currently around 3,000 out of 8,000 IUPs that have been given out will be verified and audited with regard of overlapping issues
It will take only around 3-6 months for borrow use permit approval (including the principle approval) as long as there are no overlapping issues, all requirement are met and have the necessary recommendation from local government. It’s been improving significantly since previously it could take years.
The 10% area limitation of forest concession (Perhutani) is extended so that it applies even where no forestry concessions overlap. It excludes the infrastructure and protected areas and exempts for exploration approvals.
Government regulation No62/2008 regarding the tax policy encourage for value added project like coal liquefaction and coal gasification through favorable tax scheme.
With regard to minimum coal price related to HBA, Luke reiterated that coal miners can not sell lower than HBA despite pay royalty based on the HBA. This minimum price benchmark is not permitted for blended coal. He also highlighted and expects to see most Indonesia coal export being effected through FOB barge to affiliated trading contractors since it could lower the effective royalty rate due to no transport or logistic cost deduction allowed since 2009.

Indonesian coal outlook:
There is an improvement on the feasibility of coal upgrading technology prospect. Like the one that is introduced by Total Sinergy International (TSI), named Geo Coal. TSI has signed agreement with subsidiary of PLN in Joint Research and Development for Geo Coal which will be commissioned by August 2011 for capacity of 1.5Mt per year. Capex is estimated to US$10mn for 1Mt coal with recovery rate of 55% and upgrading time of 30minutes.
Around 33-34% of total additional export growth in 2020 will be contributed from brown field (47Mt) and green field (79Mt) based on Wood Mackenzie.
Indonesia will remain attractive for global coal investor considering its efficient operations, low cost government take and strategic location vs Australia.
From the panel discussion, there were attractive voting highlights as follow:
70% remain bullish in coal as the main source of energy
49% voted that LNG and natural gas will substitute coal, 30% voted for renewable energy and 15% voted for nuclear
37% voted that Newcastle coal price will rise by $10-20/ton, while 35% steady at current price
55% voted that China and India is the main driver for coal prices in 2H11 and 21% voted for weather issues.
60% voted that Indonesia new investment will reach US$5-25bn within 2-3 years.
65% voted that low rank coal with 3,000 kcal GAR will have attractive market in the next 3-4 years
32% voted that DMO is fair due to solidarity to fulfill local energy but 36% unfair.
40% voted that new Mining Law give improvement, but 35% impeded.
35% voted that HBA is not relevant with regard to term contract, 33% voted unrealistic high.

Asia Pacific outlook:
J-Power lower its estimated thermal coal demand in 2011 from 120Mt to 110Mt. Currently 19GW (8% of total power plant capacity is shut down, which coal fired power plant accounts 6GW). Severely damaged region accounts for 19Mt coal per year or 15.8% from total national demand. Rapid energy growth mostly comes from oil and natural gas, since coal fired power plants have been utilized optimally. Coal import is expected to grow moderately by 5-6Mt post recovery
There is potential development for clearing price for Southeast China index to be more transparent and for hedging purposes.
Based on Neil Dhar from Noble, China’s thermal coal imports will grow from 95Mt in 2010 up to 118Mt in 2015, +6-7%CAGR and India’s thermal coal import will grow from 58Mt in 2010 up to 106Mt in 2015, +12-13% CAGR.
Vietnam will be the next key driver for Asia Pacific with estimated thermal coal import up to 51.5Mt by 2025, account 40% of total domestic demand of 107Mt.
Taipower (Taiwan) expects that its total installed capacity will increase from 42.3GW in 2010 up to 53.7GW in 2021(+2.5%CAGR). Coal demand will increase from 25.7Mt in 2010 up to 42.3Mt in 2020 (+5.2%CAGR), where Indonesia will account for 58% for its total import by 2020.
There will be key changing players for seaborne coal suppliers from West coast US, Mongolia, Russia and Mozambique which in total those would account more than 10-20% of total global seaborne trade by 2020 based on Wood Mackenzie.
For US west coast coal, there is potential huge coal supplies come from Powder River Basin (PRB) that will be the “swing supplier” in coming years considering PRB cycle time of only 6-10 days. US west coast freight day is considered remain competitive at around 13-25 days to Asia Pacific market vs Indonesia 5-10 days and Australia 13-18 days.

Overall we remain positive in Indonesian coal industry. Therefore we reiterate our overweight rating in Indonesian coal sector. We remain have buy rating in BUMI, ITMG, ADRO, HRUM and INDY.

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