UPDATE 3-Indonesia eyes coal export curbs, tax

UPDATE 3-Indonesia eyes coal export curbs, tax

Mon, Jun 04 06:05 AM EDT
* Govt to curb exports to conserve coal for domestic use

* Indonesia still considering export tax for coal

* Move could hurt trade balance, investor sentiment-analyst

* Coal stocks slide, Bumi down 13 pct vs index down 4 pct

By Fayen Wong and Fergus Jensen

NUSA DUA, Indonesia, June 4 (Reuters) - Indonesia plans to curb coal exports and is considering a tax on shipments of the mineral, government officials said on Monday, pushing shares in the country's leading coal miners down by more than 13 percent.

The world's top thermal coal exporter has introduced a series of regulations aimed at squeezing extra state revenue from the mining industry, including limiting foreign ownership and a 20 percent tax on exports of unprocessed minerals.

But the government has so far steered clear of coal exports, worth $27 billion last year, or 13 percent of the country's total.

Any coal export curb is not likely to boost prices in the short-term for a well supplied market, but could push up costs for the fuel in the long run as it would force Indonesia's top coal buyers India and China to seek alternatives.

"Indonesia is the biggest supplier of seaborne thermal coal, and if everyone has to pay 20 percent more to get Indonesian tonnes, it will have a real impact for sure," said Lachlan Shaw, commodities analyst at Commonwealth Bank of Australia in Melbourne.

Energy and Minerals Minister Jero Wacik said on Monday the country needed to conserve coal for domestic use, in a G20 economy seeing strong growth and surging demand for power generation.

"Indonesia's need for coal will increase strongly, so exports will need to be controlled," Wacik told the Coaltrans conference in Bali.

He gave no details on the scope or timeframe of any curbs.

The comments drove down shares in the country's top coal miners Bumi Resources and Adaro Energy by over 13 percent, versus a 4.3 percent drop in the broader Jakarta index.

Indonesia's coal demand is seen growing 10 percent next year to 63.2 million tonnes and then to about 68 million tonnes by 2014, state utility PLN said on Monday. It forecasts consumption will surge to 125.7 million tonnes by 2022.

The former OPEC member is already reducing its liquefied natural gas exports because of higher domestic power demand.

Thamrin Sihite, a director general in the energy and minerals ministry, said the country is still considering a tax on coal exports, while another official at the ministry said it could impose a quota on production and higher royalties.

"Royalties at the moment are too low," Edi Prasodjo, coal mining chief at the ministry, told Reuters on the sidelines of the conference. "We are still discussing the figures."

COAL BOOM

Indonesia already has a domestic supply obligation for coal, but miners have so far been easily able to meet this and ship growing volumes each year to meet regional demand, particularly to India where power generation has surged.

"The key question is, if the government requires coal producers to set aside a larger amount of tonnes for domestic consumption, can the coal producers expand production faster than those domestic obligations? If they can, exports will grow as well," said Shaw.

Indonesia has seen a boom in coal production in the past decade, and output is forecast by the industry to reach 390 million tonnes this year. But utility PLN said the government needs to start preserving coal resources or they will run out.

"We are not the largest in coal reserves but we are the largest exporter of thermal coal. If there is no new exploration, all our coal resources will be finished in 40 years. Indonesia will have no more coal for itself and no more coal left to export," said PLN's CEO Nur Pamudji.

Indonesia has coal reserves of 21 billion tonnes, accounting for around 3 pct of the world total.

Officials say new mining policies are aimed at helping the country conserve its resources and increase state revenue, though they have been criticised for creating uncertainty in the sector and hurting investor sentiment.

NATIONALISM

Local governors in Kalimantan on Borneo island, the country's main coal producing region, threatened earlier this month to shut down coal exports if the central government did not supply it more subsidised motor fuel, reflecting growing internal power struggles over the country's resource wealth.

Analysts say moves to boost state revenues from the sector, particularly from foreign investors, are designed to play to a domestic audience ahead of national elections in 2014 and are a part of a growing global trend of resource nationalism.

Wacik had a clear message to foreign investors at the conference. He said the government welcomes foreign investment in the mining sector but stressed the country's vast mineral resources will be prioritised to meet domestic needs.

"Our priority is the welfare of the people," Wacik told the gathering of industry executives.

Southeast Asia's biggest economy imposed a rule earlier this year requiring foreign companies to sell down stakes in mines and increase domestic ownership to at least 51 percent by the 10th year of a mine's production.

Indonesia's move towards limiting mineral exports is adding to worries by global investors already looking for safety in the dollar. The country's rupiah currency, emerging Asia's worst performer so far this year along with the Indian rupee, fell 1 percent on Monday.

"The policy would have adverse implications for trade, investment and growth," said Jakarta-based political risk analyst Kevin O'Rourke in a report.


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U.S. data, Europe woes to set tone

U.S. data, Europe woes to set tone
Fri, May 25 20:23 PM EDT

By Chuck Mikolajczak

NEW YORK (Reuters) - Investors will grapple next week with major U.S. economic reports and the looming possibility of a Greek exit from the euro zone, which is likely to keep dragging on equities for weeks to come.

As contingency plans are made for Greece's possible departure from the euro zone, investors may not get a clear picture until Greece holds elections on June 17. As a result, U.S. economic statistics may grab the spotlight during the holiday-shortened week.

Major releases include consumer confidence, gross domestic product and on Friday the May non-farm payrolls report, which could provide clues on whether the economy is running out of steam or has simply hit a soft patch.

U.S. financial markets will be closed on Monday for the Memorial Day holiday.

Corporate news next week is expected to be light, with the first-quarter earnings season largely in the rear view mirror. Among S&P 500 (.SPX) companies, only government contractor SAIC Inc (SAI.N) is scheduled to report next week.

EUROPE STILL A CONCERN

"We are going to continue to worry about Europe no matter what. That is going to be a concern," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

"But with the two main events in Europe not taking place for several weeks, the market will probably concentrate more on the domestic economy and the economic numbers."

But Europe will continue to be closely monitored, with equities affected by any developments in the fiscally troubled region. Increasing worries about the region, coupled with tepid U.S. data, have sent the S&P 500 down more than 5 percent for May.

But stocks rose this week. The Dow Jones industrial average (.DJI) gained 0.7 percent, the Standard & Poor's 500 (.SPX) was up 1.7 percent and the Nasdaq composite index (.IXIC) rose 2.1 percent.

As the Greek elections draw closer, headlines from Europe could unsettle investors.

Belgian Deputy Prime Minister Didier Reynders said it would be a "grave professional error" if central banks and companies were not preparing for a Greek exit from the euro zone.

In addition, French banks, which are among the lenders most exposed to Greece, have stepped up their efforts on contingency plans for the debt-laden country leaving the euro zone, sources familiar with the situation said.

JUMPING INTO STOCKS

Any U.S. data in the coming week which points to an economy pulling out of the doldrums could divert attention from Europe and provide investors an incentive to jump into stocks, which have become cheap during the recent pullback.

Analysts have pointed to the 1,275 to 1,280 range for the benchmark S&P index, just below the 200-day moving average, as a key level of support the market is likely to challenge.

"You are looking at 1,277 on the downside. The market will test it, but when it gets there it is going to hold because there is a lot of money on the sideline that needs to be put to work," said Ken Polcari, managing director at ICAP Equities in New York.

"People are using that number as the entry point, so you will find stability at that level."

Another possible silver lining for investors may be the strengthening of the dollar, which has been a safe haven during the euro zone's sovereign debt troubles.

The dollar index .DXY is up nearly 5 percent for the month, and some analysts feel it could not only help equities stabilize but spur a move higher.

"With sovereign debt default now a possibility, and some form of dissolution of the euro also possible, the hidden positive may be for the U.S. dollar, and U.S. dollar-denominated assets," said Brad Lipsig, vice president of investments and senior portfolio manager at UBS Financial Services in New York.

"Capital inflows could support U.S. real estate prices, which could help stabilize U.S. banks," he said. "All of this could help support U.S. stock prices during a difficult period for Europe's economy. It's not inconceivable that this dynamic could trigger a rally in the U.S. stock market."

(Reporting By Chuck Mikolajczak; Editing by Kenneth Barry)


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